The  Whelps  of  the  Tigress; 
A  Resume  of  the 
National  Banking  System 


By 
R.  M.  Smith 


AT    LOS  ANGELES 


FHE  WHELPS... 
)F  THE  TIGRESS. 


>  ) 


II    " J  "   "    ] 


-■"I  .'.  t    ,  a    *««    w    11      •• 


A  RESUME 


-OF- 


The  National  Banking  System, 


By  R.  M.  SHITH. 


"  We  have  driven  the  tigress  to  the  jungles,  but  I  fear  thai 
ome  day  she  will  return,  bringing  her  whelps  with  het 

Thomas 


I  HOMAS  H.  KEN'TON. 


Copyright  1894,  by  R.  M.  Smitm.  \    '^V  '  -1 


A  RESUME  OF  THE 


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UR  F'ATHERJ'v,  wfeej*  »they  «forbade  entail,  and  provided 
for  the  dVs-trtbfltSoa  fti •estates,  thought  they  had  erected  a 
barrier  against  the  money    power  that   ruled   England. 


^r 


They  forgot  that  money  could  combine;  that  a  moneyed 
corporation  is  like  the  Papac3',  a  succession  of  persons  with  a 
unity  of  purpose.  Now  as  the  land  of  England  in  the  hands  of 
thirty  thousand  land-owning  families  has  ruled  it  for  six  hun- 
dred years,  so  the  corporations  of  America  mean  to  govern.  The 
survival  of  Republican  institutions  here  depends  upon  a  success- 
ful resistance  of  this  tendencj7.  The  only  hope  of  any  effectual 
grapple  with  the  danger  lies  in  rousing  the  masses,  whose  inter- 
ests lie  permanent^'  in  the  opposite  direction." 

-    From    Wendell  Phillip's  speech   at   Music  Hall,  Boston, 
October  31,  1871. 


NATIONAL  BANKING  SYSTEM. 

Crs 


PRE 


FACE.  J^V    Co- 


7i  JL% 

In  the  following-  pages  the  writer  has  sought  simply  to  s 
\  offer  a  sketch  of  the  origin  and  development  of  the  na* 
tional  banking  system,  and  a  brief  review  of  certain  ob- 
jections which  in  the  light  of  experience  with  its  practical 
workings,  and  with  the  operation  of  former  kindred  sys- 
terns,  may  be  urged  against  it. 

In  the  execution  of  this  purpose/ it-  has  settled  advisable 
to  use,  as  far  as  possible,  the  language  of  such  authorities 
as  would  be  recognized  as  worthy  of  respectful  considera- 
^  tion. 

Believing  that  the  policy  of  permitting  the  control  over 
*  the  circulating  medium  of  the  country  to  be  vested  to  any 
K)  considerable  extent  iu  banks  of  issue  is  unalterably  op- 
posed to  the  equitable  distribution  of  wealth,  the  writer 
sends  forth  this  little  treatise  in  the  hope  that  it  may  help 
some  of  his  countrymen  to  understand  that  "  the  best 
banking  system  the  world  ever  saw  "  is  "a  cunningly  de- 
vised scheme  to  fertilize  the  rich  man's  field^br~the^sweat 


of  the  poor  man's  brow." 

-""  Rial  M.  Smith. 

Akron,  O.,  October  10,  1894. 


389269 


4  A  RESUME  OF  THE 

CHAPTER  I. 

The  Origin  of  the  National  Banking  System. 

The  national  banking-  system  had  its  origin  in  the  civil 
war. 

At  the  beginning-  of  the  war  the  currency  of  the  country 
consisted  in  the  gold  and  silver  coinage  of  the  United 
States,  and  the  bank  note  issues  of  State  banks.  The 
amount  of  money  in  the  country  was  manifestly  inadequate 
to  the  needs  of  war.  The  financial  condition  of  affairs  at 
this  time  is  thus  described  in  Hay  and  Nicolay's  "Abraham 
Iyincoln,  a  History,"  vol.  6,  page  230: 

"It  was  apparent  that  the  volume  of  currency  in  the 
country  was  not  sufficient  for  the  enormous  requirements  of 
the  public  expenditure.  The  banks  could  neither  pay  coin 
to  the  Government  for  bonds,  nor  dispose  of  them  to  their 
customers  for  specie.  The  weaker  institutions  were  already 
tottering,  and  the  stronger  ones  feared  a  crisis  which  would 
result  in  universal  disaster.  They  met  in  convention  on  the 
27th  day  of  December,  1861,  and  agreed  upon  a  suspension 
of  specie  payments  which  took  place  the  following  day. 
The  Government  necessarily  followed  the  example  of  the 
banks.  *  *  *  In  the  world  of  finance,  as  well  as  in  the 
world  of  politics,  it  was  generally  agreed  that  the  only  re- 
sort of  the  Government  was  paper  money." 

Congress  had  been  called  in  extra  session  in  July,  1861, 
for  the  purpose  of  devising  ways  and  means  of  carrying  on 
the  war.  During-  this  session  of  Congress  two  loan  acts 
were  passed,  one  of  which  was  approved  on  the  17th  day  of 
July,  and  the  other  on  the  5th  day  of  August. 

J3erkey  in  his  work  on  the  "Money  Question,"  describes 
these  acts  as  follows  : 

"By  the  act  of  July  17th,  the  Secretary  of  the  Treasury 
was  authorized  to  borrow  5250,000,000,  for  which  he  was  au- 
thorized to  issue  coupon  bonds  or  registered  bonds  or  Treas- 
ur}r  notes  in  such  proportions  of  each  as  he  might  deem 
advisable.     The  bonds  were  to  bear  interest  not  exceeding- 


NATIONAL  BANKING  SYSTEM.  5 

seven  per  cent,  per  annum,  payable  semi-annually,  and  to 
run  for  20  years,  when  they  would  be  redeemable  at  the 
pleasure  of  the  United  States ;  and  the  Treasury  notes  were 
to  be  issued  in  denominations  of  not  le-s  than  $50,  payable 
three  years  after  date,  with  interest  at  7  3-10  per  cent.,  pay- 
able semi-annually,  and  exchangeable  at  any  time  for 
twenty-year  six  per  cent,  bonds.  Or  at  his  option  the  Sec- 
retary of  the  Treasury  might  issue  $50,000,000  of  the  above 
loan  in  Treasury  notes,  payable  on  demand,  in  denomina- 
tions of  not  less  than  ten  dollars  each,  without  interest,  and 
made  payable  for  salaries  and  other  dues  from  the  United 
States  Treasury  (afterwards  known  as  old  demand  notes) ; 
or  he  might  issue  Treasury  notes  payable  in  one  year  from 
date,  bearing  interest  at  3  65-100  per  cent.,  exchangeable  at 
any  time  in  sums  of  $100  or  upwards  for  three-year  Treas- 
ury notes  bearing  7  3-10  per  cent,  interest. 

"By  the  act  of  August  5th,  which  was  supplementary  to 
the  act  of  July  17th,  the  Secretary  of  the  Treasury  was  au- 
thorized to  issue  bonds  bearing  interest  at  six  per  cent,  per 
annum,  payable  after  20  years,  which,  in  denominations  of 
not  less  than  $500,  might  be  exchanged  for  Treasury  notes 
bearing  7  3-10  per  cent,  interest.  The  act  of  July  17th,  fix- 
ing the  denomination  of  Treasury  notes  without  interest 
(demand  notes)  at  not  less  than  ten  dollars  was  modified  so 
as  to  fix  the  limit  at  not  less  than  five  dollars,  and  these 
(demand)  notes  were  made  receivable  in  payment  of  public 
dues.  By  the  sixth  section  of  this  act  the  Sub-Treasury  act 
of  1846  was  '  suspended  so  far  as  to  allow  the  Secretary  of 
the  Treasury  to  deposit  any  of  the  moneys  obtained  on  any 
of  the  loans  now  authorized  by  law  to  the  credit  of  the 
Treasurer  of  the  United  States  in  such  solvent  specie-pay- 
ing banks  as  he  may  select.'  " 

Ten  million  dollars  more  of  the  demand  notes  were  au- 
thorized to  be  issued  by  an  act  of  Congress  approved  Febru- 
ary 12,  1862 ;  and  by  act  of  March  17,  1862,  these  demand 
notes,  $60,000,000  in  all,  in  addition  to  "  being  receivable  in 
payment  of  duties  on  imports,''''  were  made  "lawful  money 
and  a  legal  tender  in  like  manner  and  for  the  same  pur- 
poses as  the  notes  authorized  by  the  act  approved  Febru- 
ary 25,  1862." 

It  may  be  worth  while  at  this  point  to  call  the  reader's  at- 


6  A  RESUME  OF  THE 

tention  to  the  fact  that  these  demand  notes  after  they  were 
made  a  full  legal  tender  circulated  at  par  with  g-old  even 
when  gold  had  reached  a  premium  of  185  per  cent,  over 
other  paper  issues  of  the  Government.  The  reason  for  the 
depreciation  in  other  currency  issues  will  be  found  in  the 
laws  providing-  for  such  issues,  and  will  be  discussed 
later  on. 

In  his  first  report  to  Congress  in  December,  1861,  Secre- 
tary of  the  Treasury  Chase  recommended  the  establishment 
of  a  national  banking  system  upon  substantially  the  same 
plan  as  that  afterward  adopted.  His  avowed  purpose  in 
making  this  recommendation  was  to  establish  a  currency  of 
uniform  value  throughout  the  country  to  take  the  place  of 
the  varying  and  uncertain  State  bank  currency  then  in  ex- 
istence. He  lived,  however,  to  express  his  regrets  at  having- 
been  instrumental  in  establishing  the  present  system. 

At  the  opening  of  the  regular  session  of  Congress  in  De- 
cember, 1861,  a  sub-committee  of  the  Committee  of  Ways 
and  Means  was  appointed  to  consider  the  recommendations 
of  Secretary  Chase  in  regard  to  the  "proposed  national 
bank  currency,  the  issue  of  Treasury  notes  and  bonds,  and 
the  mode  of  raising  means  to  carry  on  the  war."  This  sub- 
committee, consisting  of  Messrs.  Spaulding,  Hooper  and 
Corning,  at  once  went  to  work  and  prepared  a  national 
bank  currency  bill  of  sixty  sections,  one  section  of  which 
provided  for  an  issue  of  legal  tender  Treasury  notes.  The 
bill  as  prepared  was  not  introduced  at  this  time,  however. 

Mr.  Spaulding  says  in  his  "Financial  History  of  the 
War"  that,  upon  more  mature  consideration  and  exami- 
nation, he  came  to  the  conclusion  that  the  bank  bill  of  sixty 
sections  could  not,  with  the  State  banks  opposed  to  it,  be 
passed  through  both  houses  of  Congress  for  several  months, 
and  that  so  long  a  delay  would  be  fatal  to  the  Union  cause. 
He  therefore  changed  the  legal  tender  section  intended  origi- 
nally to  accompany  the  bank  bill  into  a  separate  bill,  with 


NATIONAL  BANKING  SYSTEM.  7 

alterations  and  additions,  and  on  his  own  motion  introduced 
it  into  the  House  by  unanimous  consent  on  the  30th  of  De- 
cember, 1861. 

This  bill  authorized  the  Secretary  of  the  Treasury  "  to  is- 
sue on  the  credit  of  the  United  States  $100,000,000  of  Treas- 
ury notes,  not  bearing-  interest,  payable  g-enerally,  without 
specifying-  any  place  or  time  of  payment,  and  of  such  de- 
nominations as  he  may  deem  expedient,  not  less  than  five 
dollars  each ;  and  such  notes  and  all  other  Treasury  notes 
payable  on  demand  not  bearing  interest,  that  have  been 
heretofore  authorized  to  be  issued,  shall  be  receivable  for  all 
debts  and  demands  due  to  the  United  States,  and  for  all  sal- 
aries, dues,  debts  and  demands  owing-  by  the  United  States 
to  individuals,  corporations  and  associations  within  the 
United  States ;  and  shall  also  be  lawful  money,  and  a  leg-al 
tender  in  payment  of  all  debts,  public  and  private,  within 
the  United  States,  and  shall  be  exchangeable  in  sums  not 
less  than  $100  at  any  time  at  their  par  value  at  the  Treasury 
of  the  United  States  for  any  of  the  six  per  cent,  twenty- 
year  coupon  or  registered  bonds  which  the  Secretary  of  the 
Treasury  is  now,  or  may  hereafter  be  authorized  to  issue ; 
and  such  Treasury  notes  shall  be  received  the  same  as  coin, 
at  their  par  value,  in  payment  for  any  bonds  that  may  be 
hereafter  negotiated  by  the  Secretary  of  the  Treasury ;  and 
such  Treasury  notes  may  be  reissued  from  time  to  time  as 
the  exigency  of  the  public  service  may  require." 

Active  opposition  to  this  bill  on  the  part  of  the  bankers  of 
New  York,  Boston  and  Philadelphia  was  at  once  manifested. 
They  sent  representatives  to  Washington  and  on  the  11th 
of  January,  1862,  a  conference  was  held  at  the  office  of  the 
Secretary  of  the  Treasury  between  these  representatives  of 
the  banks  and  the  Committee  of  Ways  and  Means  of  the 
House.  At  this  meeting  a  plan  of  raising  money  was  sub- 
mitted by  the  banks,  which  contained  the  following  pro- 
visions : 


8  A  RESUME  OF  THE 

1.  A  bill  to  raise  $125,000,000,  over  and  above  duties  on 
imports,  by  taxation. 

2.  Not  to  issue  any  demand  Treasury  notes  except  those 
already  authorized. 

3.  Issue  $100,000,000  Treasury  notes  at  two  years,  in  sums 
of  five  dollars  and  upwards,  to  be  receivable  for  public 
dues  to  the  Government,  except  duties  on  imports. 

4.  A  suspension  of  the  Sub-Treasury  act  so  as  to  allow 
the  banks  to  become  depositaries  of  the  Government  of  all 
loans,  and  to  check  on  the  banks  from  time  to  time  as  the 
Government  may  want  money. 

5.  Issue  six  per  cent,  twenty-year  bonds  to  be  negotiated 
by  the  Secretary  of  the  Treasury,  and  without  any  limita- 
tion as  to  the  price  he  may  obtain  for  them  in  the  market. 

6.  That  the  Secretary  of  the  Treasury  be  empowered  to 
make  temporary  loans  to  the  extent  of  any  portion  of  the 
funded  stock  authorized  by  Congress,  with  power  to  hy- 
pothecate such  stock,  and  if  such  loans  are  not  paid  at  ma- 
turity to  sell  the  stock  hypothecated  for  the  best  market  price 
that  can  be  obtained. 

The  conference  adjourned  without  coming-  to  any  under- 
standing. 

On  the  15th  of  January  another  conference  was  held  "  by 
the  bank  delegates  and  other  persons  connected  with  Mr. 
Chase,"  and  the  result  was  an  approval  of  the  secretary's 
plan  for  raising  money  and  launching  the  national  bank 
system.     The  following  plan  was  matured  and  adopted.* 

1.  The  banks  will  receive  and  pay  out  the  United  States 
notes  authorized  by  act  of  July  last  freely,  and  sustain  in 
all  proper  ways  the  credit  of  the  Government. 

2.  The  Secretary  of  the  Treasury  will  within  the  next 
two  weeks,  in  addition  to  the  current  daily  payments  of 
$15,000,000  in  United  States  notes,  pay  the  further  sum  of 

*  See  Bolle's  "Financial  History  of  the  United  States,  lSW-lSSS,"  pp. 
48,  49.  As  frequent  mention  will  be  made  of  this  authority  it  may  be 
worth  while  to  state  that  the  author  of  this  most  exhaustive  work  is  an 
ardent  supporter  of  the  national  banking-  system.  He  describes  himself 
as  the  "editor  of  the  Ba?il-ers'  Magazine,"  and  dedicates  the  above  vol- 
ume to  "George  D.  Baker,  President  of  the  First  National  Bank  of  the 
City  of  New  York." 


NATIONAL  BANKING  SYSTEM.  9 

at  least  $20,000,000  in  seven-thirty  bonds  to  such  public 
creditors  as  desire  to  receive  them,  and  thus  relieve  the  ex- 
isting pressure  upon  the  community. 

3.  The  issues  of  United  States  demand  notes  not  to  be  in- 
creased beyond  the  $50,000,000  authorized  by  the  act  of  last 
July,  but  it  is  desired  that  Congress  should  extend  the  pro- 
visions of  the  existing  loan  acts  passed  at  the  extra  session 
in  July,  so  as  to  enable  the  Secretary  to  issue  in  exchange 
for  United  States  demand  notes,  or  in  payment  of  creditors, 
notes  payable  in  one  year  bearing  3  65-100  per  cent,  inter- 
est, and  convertible  into  seven-thirty  three  year  bonds ;  or 
to  borrow  under  the  existing  provisions  to  the  amount  of 
$250,000,000  or  $300,000,000. 

4.  It  is  thought  desirable  that  Congress  should  enact  the 
National  currency  bank  bill,  embracing  the  general  pro- 
visions recommended  by  the  Secretary  in  his  annual  re- 
port. 

5.  It  is  expected  that  this  action  and  liquidation  will  ren- 
der the  making  of  the  United  States  demand  notes  a  legal 
tender,  or  their  increase  beyond  the  $50,000,000  authorized  in 
July  last  unnecessary. 

On  the  22d  of  January  an  additional  section  of  the  legal 
tender  bill  was  reported  to  the  House  by  the  Ways  and 
Means  Committee.  This  section  authorized  the  Secretary 
of  the  Treasury  to  issue,  on  the  credit  of  the  United  States, 
coupon  or  registered  bonds  to  an  amount  not  exceeding 
$500,000,000,  and  redeemable  at  the  pleasure  of  the  Govern- 
ment after  twenty  years  from  date,  and  bearing  interest  at 
six  per  cent,  per  annum,  payable  semi-annually,  to  enable 
the  Secretary  of  the  Treasury  to  fund  the  Treasury  notes 
and  floating  debt.  The  amended  bill  containing  this  addi- 
tional section  passed  the  House  on  the  6th  day  of  Febru- 
ary. Before  passing,  however,  the  amount  was  increased 
to  $150,000,000,  and  it  was  provided  that  $50,000,000  of  said 
notes  were  to  be  in  lieu  of  the  demand  notes  issued  under 
the  act  of  July  17th,  "which  said  demand  notes  shall  be 
taken  up  as  fast  as  practicable,  and  the  notes  herein  pro- 
vided for  substituted  for  them."     Thaddeus  Stevens,  who 


10  A  RESUME  OF  THE 

was  chairman  of  the  Ways  and  Means  Committee,  closed 
the  debate  in  the  House  on  this  bill  in  a  speech  from  which 
the  following  extract  is  taken  : 

"The  Secretary  of  the  Treasury,  in  his  report  recom- 
mended a  scheme  to  produce  a  uniform  national  currency 
and  furnish  a  market  for  Government  bonds.  It  proposes 
that  the  banks  shall  receive  their  circulation  from  the  Gov- 
ernment to  the  amount  of  Government  bonds  pledged  with 
the  Treasury  for  their  security,  and  that  no  more  notes 
should  be  issued  than  the  par  value  of  such  bonds,  and 
should  be  redeemed  by  the  banks.  *  *  *  How  would 
that  be  any  better  than  the  Government's  own  notes  ?  The 
security  of  the  Government  is  equal  to  that  of  the  banks, 
and  would  give  as  much  currency.  To  the  banks  I  can  see 
its  advantage.  They  would  have  the  whole  benefit  of  the 
circulation  without  interest,  and  at  the  same  time  would 
draw  interest  on  the  Government  bonds  from  the  time  they 
got  the  notes.  Now  it  is  very  plain  that  if  the  United 
States  issued  those  notes  direct,  they  (the  United  States) 
would  have  the  benefit  of  the  whole  circulation.  *    * 

I  flatter  myself  that  I  have  demonstrated  that  such  notes 
made  a  legal  tender  and  not  issued  in  excess  of  the  demand 
will  remain  at  par  and  pass  in  all  transactions,  great  and 
small,  at  the  full  value  of-  their  face  ;  that  we  shall  have 
one  currency  for  all  sections  of  the  country,  and  for  every 
class  of  people,  the  poor  as  well  as  the  rich.  *  *  *  Mr. 
Chairman,  let  me  say  in  conclusion  that  unless  this  bill  is 
to  pass  with  the  legal  tender  clause  in  it,  it  is  not  desirable 
to  its  friends,  or  to  the  administration,  that  it  should  pass 
at  all.  *  *  *  If  this  bill  shall  pass,  I  shall  hail  it  as  the 
most  auspicious  measure  of  this  Congress;  if  it  should  fail, 
the  result  will  be  more  deplorable  than  any  disaster  which 
could  befall  us." 

This  bill  passed  the  House,  and  was  reported  from  the 
Finance  Committee  to  the  Senate  on  the  10th  day  of  Febru- 
ary, 1862,  with  the  following  amendments  thereto: 

1.  That  the  legal  tender  notes  should  be  receivable  for 
all  claims  and  demands  against  the  United  States  of  every 
kind  whatever,  "  except  for  interest  on  bonds  and  notes  which 
shall  be  paid  in  coin.'''' 

2.  That   the  Secretary  might  dispose  of   United  States 


NATIONAL  BANKING  SYSTEM.  11 

bonds  at  the  market  value  thereof  for  coin   or  Treasury 
notes. 

3.  Authorizing-  deposits  in  the  sub-treasuries  at  five  per 
cent,  for  not  less  than  thirty  days  to  the  amount  of  $25,- 
000,000,  for  which  certificates  of  deposit  might  be  issued. 

4.  An  additional  section  providing-  that  all  duties  on  im- 
ported goods,  and  proceeds  of  the  sale  of  public  lands  be 
set  apart  to  pay  coin  interest  on  the  debt  of  the  United 
States,  and  providing  for  a  sinking  fund. 

On  the  14th  of  February  the  bill  as  amended  was  passed 
by  the  Senate  by  a  vote  of  30  to  7,  and  was  returned  to  the 
House.  On  the  19th  the  bill  as  amended  by  the  Senate  be- 
ing again  before  the  House  for  consideration,  Mr.  Spauld- 
ing  opened  the  debate  thereon  in  a  speech  in  the  course  of 
which  he  said: 

"Mr.  Chairman,  I  desire  especially  to  oppose  the  amend- 
ments of  the  Senate  which  require  the  interest  on  bonds 
and  notes  to  be  paid  in  coin  semi-annually,  and  which 
authorizes  the  Secretary  of  the  Treasury  to  sell  six  per 
cent,  bonds  at  the  market  price  for  coin  to  pay  the  in- 
terest. The  Treasury  note  bill  as  reported  first  from  the 
Committee  of  Ways  and  Means  as  a  necessary  war  meas- 
ure was  simple  and  perspicuous  in  its  terms  and  easily  un- 
derstood. It  was  so  plain,  that  everybody  could  understand 
that  it  authorized  the  issue  of  $150,000,000  of  legal  tender 
notes  to  circulate  as  a  national  currency  among  the  people 
in  all  parts  of  the  United  States,  and  that  they  might  at  any 
time  be  funded  in  six  per  cent,  twenty-year  bonds.  The 
passage  of  the  measure  in  this  House  was  hailed  with  satis- 
faction by  the  great  mass  of  the  people  all  over  the  country. 
I  have  never  known  a  measure  receive  a  more  hearty  ap- 
proval from  the  people.  Nearly  every  amendment  to  the 
bill  since  it  was  matured  has  rendered  it  more  complex  and 
difficult  of  execution.  I  regret  to  say  that  some  of  the 
amendments  of  the  Senate  render  the  bill  incongruous,  and 
tend  to  defeat  its  great  object,  namely,  to  prevent  all  forcing 
of  the  Government  to  sell  its  bonds  in  the  market  to  the 
highest  bidder  for  coin.  It  might  be  very  pleasant  for  the 
holders  of  the  7  3-10  per  cent.  Treasury  notes  and  6  per  cent, 
bonds  to  receive  their  interest  in  coin  semi-annually,  but 
very  disastrous  to  the  Government  to  sell  its  bonds  at  ruin- 


12  A  RESUME  OF  THE 

ous  rates  of  discount  every  six  months  to  pay  them  g"old 
and  silver,  while  it  would  pay  only  Treasury  notes  to  the 
soldier,  sailor  and  all  other  creditors  of  the  Government. 
Why  make  this  discrimination?  Who  asks  to  have  one 
class  of  creditors  placed  on  a  better  footing-  than  another 
class  ?  Does  the  sailor,  the  farmer,  the  mechanic,  the  mer- 
chant ask  to  have  any  such  discrimination  made  in  their 
favor?  No,  sir;  no  such  unjust  preference  is  asked  for  by 
this  class  of  men.  They  ask  for  the  legal  tender  note  pure 
and  simple.  They  ask  for  a  national  currency  which  shall 
be  of  equal  value  in  all  parts  of  the  country.  They  want  a 
currency  that  shall  pass  from  hand  to  hand  among  all  the 
people  in  every  state,  county,  city,  town  and  village  in  the 
United  States.  They  want  a  currency  secured  by  adequate 
taxation  upon  the  whole  property  of  the  country  which  will 
pay  the  soldier,  the  farmer,  the  mechanic  and  the  banker 
alike  for  all  debt  due.  They  ask  that  the  Government  shall 
stand  upon  its  own  responsibility,  its  own  rights,  and  exert 
its  vast  powers,  preserve  its  own  credit,  and  carry  us  safely 
through  this  gigantic  rebellion  in  the  shortest  time  and  with 
the  least  possible  sacrifice." 

Mr.  Pendleton,  of  Ohio,  offered  an  amendment  to  the 
Senate  amendment  requiring  the  interest  on  bonds  and 
notes  to  be  paid  in  coin,  which  provided  "that  the  officers, 
soldiers,  seamen  and  marines  engaged  in  the  military  serv- 
ice of  the  United  States  shall  also  be  paid  in  coin ;  "  but  it 
was  not  agreed  to. 

On  the  20th  of  February  Thaddeus  Stevens  closed  the  de- 
bate on  the  amended  bill  with  a  speech  in  which  he  said : 

"Mr.  Speaker,  I  have  but  few  words  to  say.  I  approach 
the  subject  with  more  depression  of  spirits  than  I  ever  be- 
fore approached  any  question.  No  personal  motive  or  feel- 
ing influences  me.  I  hope  not  at  least.  I  have  a  melan- 
choly foreboding  that  we  are  about  to  consummate  a  cun- 
ningly devised  scheme  which  will  carry  great  injury  and 
great  loss  to  all  classes  of  people  throughout  the  Union, 
except  one.  With  my  colleague,  I  believe  that  no  act  of 
legislation  of  this  Government  was  ever  hailed  with  as 
much  delight  throughout  the  whole  length  and  breadth  of 
this  Union  by  every  class  of  people  as  the  bill  we  passed 
and  sent  to  the  Senate.     Congratulations  from  all  classes — 


NATIONAL  BANKING  SYSTEM.  13 

merchants,  traders,  manufacturers,  mechanics  and  labor- 
ers— poured  in  upon  us  from  all  quarters. 

"It  is  true  there  was  a  doleful  sound  came  up  from  the 
caverns  of  bullion  brokers,  and  from  the  saloons  of  the  as- 
sociated banks.  Their  cashiers  and  agents  were  soon  on 
the  ground,  and  persuaded  the  Senate  with  but  little  delib- 
eration to  mangle  and  destroy  what  it  had  cost  the  House 
months  to  digest,  consider  and  pass.  They  fell  upon  the 
bill  in  hot  haste,  and  so  disfigured  and  deformed  it  that  its 
very  father  would  not  know  it.  Instead  of  being  a  benefi- 
cent and  invigorating  measure,  it  is  now  positively  mis- 
chievous. It  now  creates  money  and  by  its  very  terms  de- 
clares it  a  depreciated  currency.  It  makes  two  classes  of 
money,  one  for  the  banks  and  brokers,  and  another  for  the 
people.  It  discriminates  between  the  rights  of  different 
classes  of  creditors,  allowing  the  rich  capitalist  to  demand 
gold,  and  compelling  the  ordinary  lender  of  money  on  in- 
dividual security  to  receive  notes  which  the  Government 
had  purposely  discredited." 

The  House  refused  to  agree  to  certain  of  the  Senate 
amendments,  and  a  conference  committee  was  appointed 
consisting  of  Messrs.  Fessenden,  Sherman  and  Carlisle  of 
the  Senate,'  and  Messrs.  Stevens,  Horton  and  Sedgwick  of 
the  House.  This  committee  made  some  alterations  in  the 
bill,  among  which  was  the  insertion  of  a  provision  that 
"  duties  on  imports  should  be  paid  in  coin."  The  insertion 
of  this  provision  was  secured  by  Mr.  Stevens  for  the  pur- 
pose of  preventing  the  Government  from  being  forced  to 
sell  its  bonds  in  open  market  for  coin  with  which  to  pay 
the  interest  on  the  public  debt.  The  bill  having  been  re- 
ferred back  to  the  House  and  Senate  passed  both,  and  was 
approved  by  the  President  on  the  25th  of  February,  1862.* 

Judge  Kelley,  in  a  speech  delivered  at  Philadelphia  on 
the  15th  of  January,  1876,  in  referring  to  the  passage  of 
this    act,    said :     "  I   remember   the   grand   old   commoner 


*  An  additional  issue  of  $150,000,000  of  such  Treasury  notes  was  au- 
thorized by  an  act  passed  Jul}-  1L,  1862. 


14  A  RESUME  OF  THE 

(Thaddeus  Stevens)  with  his  hat  in  his  hand,  and  his  cane 
under  his  arm,  when  he  returned  to  the  House  after  the 
final  conference  and  shedding-  bitter  tears  over  the  result. 
'Yes,'  said  he,  'we  have  had  to  yield.  The  Senate  was 
stubborn.  We  did  not  yield  until  we  found  that  the  coun- 
try must  be  lost  or  the  banks  be  gratified,  and  we  have 
soug-ht  to  save  the  country  in  spite  of  the  cupidity  of  its 
wealthier  citizens.'  " 

Although  the  moneyed  classes  did  not  succeed  in  forcing 
the  sale  of  Government  bonds  in  the  market  every  six 
months,  as  they  sought  to  do,  in  order  that  they  might  buy 
the  bonds  at  immense  discounts,  they  nevertheless  accom- 
plished the  same  purpose  by  thus  depreciating  the  value  of 
the  currency  with  which  these  bonds  were  purchasable  at 
par.  The  Treasury  notes  issued  under  this,  and  other  sim- 
ilar acts  depreciated  in  value  for  the  simple  reason  that 
they  were  not  receivable  in  payment  of  duties  upon  im- 
ports. The  fact  that  the  demand  notes  (of  which  $60,000,- 
000  were  issued  as  before  stated),  did  not  depreciate,  but 
remained  always  at  par  with  gold,  was  due  solely  to 
the  fact  that  the  demand  notes  were  receivable  for  such 
duties,  in  addition  to  their  legal  tender  qualities  in  other 
respects. 

The  evidence  upon  this  point  is  conclusive,  if  any  evi- 
dence were  needed. 

Mr.  George  S.  Coe,  president  of  the  American  Exchange 
Bank  of  New  York,  in  describing  at  a  meeting  of  the 
American  Bankers'  Association  in  1877,  the  consequences 
of  Secretary  Chase's  action  in  issuing  these  demand  notes, 
said:  "These  notes  were  irredeemable  from  the  start. 
The  Treasurer  had  no  money  except  that  which  the  banks 
furnished,  and  of  course  it  was  impossible  for  him  to  issue 
a  redeemable  note."  * 


*Bolle's  "Financial  History,"  p.  34. 


NATIONAL  BANKING  SYSTEM.  15 

The  following-  illustration  from  the  same  authority  is 
worth  reproducing-  :* 

"About  the  time  of  the  suspension  of  coin  payments,  a 
wealthy  New  Yorker  came  into  the  possession  of  a  larg-e 
sum,  approximating  to  one  million  of  dollars,  in  demand 
notes.  He  offered  them  for  deposit  in  a  leading  bank  in 
New  York,  the  officers  of  which,  however,  refused  to  re- 
ceive them  in  the  ordinary  course  of  their  business,  or  in 
any  other  way  than  as  a  special  deposit.  Having  no  alter- 
native, the  gentleman  reluctantly  consented.  The  demand 
notes  being  receivable  for  customs,  the  same  as  coin,  kept 
pace  pari  passu  with  the  advance  in  the  price  of  coin;  and 
when  the  depositor  in  the  bank  withdrew  his  deposit,  demand 
notes  were  worth  nearly  or  quite  one  hundred  and  fifty  per 
cent,  premium,  measured  in  legal  tenders.'''' 

That  the  currency  of  the  Government  was  purposely  de- 
preciated to  the  utmost  possible  extent  by  the  bankers  and 
gold  g-amblers,  is  further  evidenced  by  the  following  state- 
ments of  Hug-h  McCulloch  in  his  Second  Report  as  Comp- 
troller of  the  Currency : 

"Hostility  to  the  Government  has  been  as  decidedly  man- 
ifested in  the  effort  that  has  been  made  in  the  commercial 
metropolis  of  the  Nation  to  depreciate  the  currency  as  it 
has  been  by  the  enemy.  Immense  interests  have  been  at 
work  all  over,  and  concentrated  in  New  York  to  raise  the 
price  of  coin." 

The  attitude  of  the  banks  in  this  respect  is  thus  described 
in  Bolle's  "  Financial  History,"  pag-e  37  : 

"Many  banks  doubtless  desired  to  furnish  the  paper  cir- 
culation needed  by  the  country,  and  looked  with  disfavor 
on  any  attempt  of  the  secretary  to  invade  their  field,  and 
declined  to  receive  the  Government  notes  in  order  to  main- 
tain their  position  more  securely." 

The  hostility  of  the  banks  to  the  demand  notes  is  indi- 
cated by  the  following  extract  from  a  letter  from  Albert 
Gallatin  to  Secretary  Chase,   bearing  date  Sept.  12,  1861, 


*  Bolle's  "Financial  History,"  p.  30. 


16  A  RESUME  OF  THE 

and  published  in  vol.   16  of  the  Bankers'1  Magazine,  pag-e 
354: 

"When  the  proposed  system  of  raising-  means  by  the 
banks  was  reported  by  a  committee  of  ten,  they  were  al- 
most unanimously  in  favor  of  affixing-  to  it  a  condition  that 
the  Government  should  not  issue  demand  notes.  That 
condition  was  only  yielded  from  a  reluctance  to  endang-er 
or  embarrass  your  appeal  in  so  solemn  a  crisis,  and  be- 
cause of  your  remonstrance  ag-ainst  being-  compelled  to 
g-ive  an  official  pledg-e  ag-ainst  the  use  of  a  leg-al  enactment, 
and  still  further  because  of  your  assurance  that  it  would 
only  be  resorted  to  when  other  means  of  raising-  money 
should  fail.  The  banks  therefore  feel  the  most  implicit 
confidence  that  these  issues  will  be  confined  to  a  very  in- 
considerable sum,  and  not  be  extended  beyond  a  small 
amount  for  which  a  specific  sum  will  be  pledged." 


CHAPTER  II. 

The  Origin  of  the  National  Banking  System.— Continued. 

About  this  time  a  circular  known  as  the  "Hazzard  circu- 
lar" was  distributed  among-  the  bankers  and  capitalists  of 
the  country  by  an  ag-ent  of  I>ondon  capitalists. 

This  circular  contained  the  following-  statements: 

"Slavery  is  likely  to  be  abolished  by  the  war  power  and 
chattel  slavery  destroyed.  This,  I  and  my  European  friends 
are  in  favor  of  for  slavery  is  but  the  owning  of  labor  and 
carries  with  it  the  care  of  the  laborer.  While  the  Euro- 
pean plan  led  on  by  England  is  for  capital  to  control  labor  by 
controlling  wages.  This  can  be  done  by  controlling  the  money. 
The  great  debt  that  capitalists  will  see  to  it,  is  made  out  of 
the  war  must  be  used  as  a  means  to  control  the  volume  of 
money.  To  accomplish  this  the  bonds  must  be  used  as  a  bank- 
ing basis.  We  are  now  waiting  for  the  Secretary  of  the 
Treasury  to  make  the  recommendation  to  Congress.  It  will 
not  do  to  alio*'  the  greenback  as  it  is  called,  to  circulate  as 
money  any  length  of  time,  as  we  cannot  cotitrol  that.'" 


NATIONAL  BANKING  SYSTEM.  1" 

On  December  4th,  1862,  Sec.  Chase  submitted  his  second 
annual  report  in  which  he  again  recommended  the  establish- 
ment of  a  national  banking-  system.  In  concluding-  this 
report,  the  Secretary  said:  "  The  g-eneral  views  of  the  Sec- 
retary may  therefore  be  thus  briefly  summed :  He  recom- 
mends that  whatever  amount  may  be  needed  beyond  the 
sum  supplied  by  revenue  and  through  other  indicated  modes, 
be  obtained  by  loans,  without  increasing-  the  issue  of  United 
States  notes  beyond  the  amount  fixed  by  law,  unless  a  clear 
public  exigency  shall  demand  it.  He  recommends  also  the 
organization  of  banking  associations  for  the  improvement 
of  the  public  credit,  and  for  the  supply  to  the  people  of  a 
safe  and  uniform  currency,  and  he  recommends  no  change 
in  the  law  providing  for  the  negotiation  of  bonds  except  the 
necessary  increase  of  amount,  and  the  repeal  of  the  absolute 
restriction  to  market  value,  and  of  the  clauses  authorizing 
convertibility  at  will." 

On  the  8th  day  of  January  1863  a  bill  "To  provide  ways 
and  means  for  the  support  of  the  Government  "  (afterwards 
known  as  the  $900,000,000  loan  act)  was  reported  from  the 
Committee  of  Ways  and  Means  to  the  House. 

After  various  amendments  the  bill  passed  both  branches 
of  Congress,  and  became  a  law  on  the  3d  day  of  March  1863. 
Mr.  Spaulding  in  his  "  Financial  History  of  the  War,"  page 
186,  describes  this  act  as  follows : 

"1.  The  first  section  authorizes  a  loan  of  $300,000,000  for 
the  then  current  year,  and  $600,000,000  for  the  then  next 
fiscal  year,  and  to  issue  bonds  therefor  at  not  less  than  ten 
nor  more  than  forty  years,  at  not  exceeding  six  per  cent, 
interest  in  coin,  not  exceeding  in  all  $600,000,000. 

"2.  By  section  second  of  the  same  act  the  secretary  in 
lieu  of  an  equal  amount  of  said  bonds,  was  authorized  to 
issue  $400,000,000  of  Treasury  notes,  bearing  interest  not 
exceeding  six  per  cent.,  ^payable  in  lawful  money,  which 
notes,  payable  at  periods  expressed  on  their  f»e,  might  be 
made  a  legal  tender  at  their  face  value. 


18  A  RESUME  OF  THE 

"3.  By  the  third  section  $150,000,000  in  amount  of  United 
States  notes  made  a  legal  tender,  might  be  issued.  The 
restriction  in  the  sale  of  bonds  to  market  value  was  re- 
pealed. And  the  holders  of  United  States  notes  issued  un- 
der former  acts  were  required  'to  present  them  for  the  pur- 
pose of  exchanging  them  for  bonds  as  therein  provided  on 
or  before  the  1st  of  July,  1863,  and  thereafter  the  right  to 
exchange  the  same  shall  cease  and  determine.' 

"4.  This  section  imposed  a  tax  of  one  per  cent,  each  half 
year  on  a  graduated  scale  of  State  bank  circulation  accord- 
ing to  the  capital  stock  of  each  bank." 

The  way  having  been  thus  prepared  for  the  successful 
inauguration  of  the  national  banking  scheme  by  legisla- 
tion tending  to  make  the  bonds  needed  for  its  basis  easily 
and  cheaply  obtainable,  the  national  bank  bill  drawn  by 
Mr.  Spaulding  in  December,  1861,  was  reported  with  cer- 
tain alterations  from  the  Finance  Committee  to  the  Senate 
by  Mr.  Sherman  on  the  2d  day  of  February,  1863.  The 
text  of  this  bill,  consisting  of  more  than  sixty  sections,  is 
too  long  for  insertion  here. 

The  following  were  the  more  important  provisions: 
Any  five  or  more  persons  could  form  an  association  hav- 
ing a  capital  stock  of  not  less  than  $50,000,  nor  less  than 
$100,000  in  cities  of  a  certain  population,  and  upon  deliver- 
ing to  the  Treasurer  of  the  United  States  interest-bearing 
bonds  to  an  amount  not  less  than  one-third  of  the  capital 
stock  paid  in,  which  must  be  not  less  than  thirty  per  cent, 
of  the  entire  capital  stock,  were  entitled  to  receive  circulat- 
ing notes  equal  in  amount  to  90  per  cent,  of  the  current 
market  (afterwards  changed  to  par)  value  of  the  bonds  de- 
posited. These  notes  were  to  be  receivable  for  all  Govern- 
ment dues,  except  duties  on  imports,  .and  payable  on  Gov- 
ernment debts,  except  for  interest  on  bonds.  In  lieu  of  all 
taxes  on  circulation  or  bonds,  the  banks  were  to  pay  one 
per  cent.  p£r  annum  semi-annually  on  their  circulation. 
They  were  to  conform  to  the  laws  of  the  States  in  fixing 


NATIONAL  BANKING  SYSTEM.  19 

their  rates  of  interest.  They  were  to  keep  on  hand  in  law- 
ful money  of  the  United  States  at  least  25  percent,  of  their 
notes  and  deposits  and  were  to  redeem  their  circulation  at 
the  place  of  issue.  The  amount  to  be  issued  was  fixed  at 
$300,000,000,  one-half  of  which  was  to  be  issued  to  banks  in 
States  and  territories  according-  to  their  population,  the 
other  half  to  be  distributed  with  regard  to  the  existing 
bank  capital,  business  and  resources  of  each  State.  A 
bureau  of  currency  was  to  be  established  in  the  Treasury 
Department  and  administered  by  a  Comptroller  and  proper 
subordinate  officers.  The  Comptroller  was  to  be  appointed 
by  the  President  with  the  consent  of  the- Senate,  and  hold 
office  five  years.  The  banks  were  to  make  quarter  yearly 
reports  of  their  condition  to  the  Comptroller.  The  Secre- 
tary of  the  Treasury  was  authorized  "to  employ  any  of 
such  associations  doing  business  under  this  act  as  deposi- 
tories of  the  public  moneys,  except  receipts  from,  customs, 
whenever  in  his  judgment  the  public  interest  will  be  pro- 
moted thereby." 

The  debate  on  this  bill  was  very  brief.  In  the  House  the 
subject  had  been  fully  discussed  when  the  $900,000,000  loan 
act  was  pending. 

In  the  Senate  Mr.  Collamer,  of  Vermont,  made  the  prin- 
cipal speech  in  opposition  to  the  bill.  In  the  course  of  his 
remarks  he  especially  insisted  that  the  objection  which  had 
been  urged  against  the  continuance  of  the  United  States 
Bank  that  it  furnished  too  powerful  a  political  agency  in 
the  hands  of  unscrupulous  and  designing  politicians,  ap- 
plied with  tenfold  greater  force  to  the  system  proposed  in 
the  bill.  The  bill  passed  the  Senate  by  a  vote  of  23  to  21, 
and  the  House  by  a  vote  of  78  to  64.  It  was  signed  by  the 
President  and  became  a  law  on  the  25th  of  February,  1863. 

The  principal  acts  afterward  passed  supplementary  to 
and  amendatory  of  this  act  are  the  following: 


20  A  RESUME  OF  THE 

At  the  next  session  of  Congress  it  was  enacted  that  for 
the  purpose  of  securing-  their  circulation  and  deposits  na- 
tional banks  outside  of  nineteen  of  the  principal  cities  of 
the  Union  named  in  the  act,  and  known  as  "  reserve  cities," 
should  keep  15  per  cent,  of  their  circulation  and  deposits  on 
hand,  three-fifths  of  which,  however,  might  be  deposited 
with  designated  banks  in  the  reserve  cities,  which  latter 
banks  should  redeem  the  circulation  of  country  banks  de- 
positing with  them  ;  that  banks  in  the  reserve  cities  (out- 
side New  York)  should  keep  25  per  cent,  of  their  circulation 
and  deposits  on  hand,  one-half  of  which  might,  however, 
be  deposited  with  designated  banks  in  New  York,  which 
New  York  banks  should  in  turn  redeem  the  circulation  of 
the  banks  in  the  reserve  cities  depositing  with  them,  and 
that  banks  in  New  York  should  keep  25  per  cent,  of  their 
circulation  and  deposits  on  hand. 

March  3,  1865,  it  was  enacted  that  in  forming  national 
banks  a  preference  should  be  given  to  those  State  banks 
not  having  over  $75,000  capital  which  applied  before  the  1st 
of  the  following  July  ;  and  that  a  tax  of  ten  per  cent,  should 
be  imposed  on  all  State  bank  notes  after  July  1,  1866. 

In  1874  a  law  was  passed  which  provided  that  the  bank 
circulation  should  be  redeemed  by  the  United  States  Treas- 
urer at  Washington.  For  this  purpose  banks  were  required 
to  deposit  with  the  Treasurer  five  per  cent,  of  their  circula- 
tion in  lawful  money  of  the  United  States,  which  was  to  be 
counted  a  part  of  their  lawful  reserve.  The  satne  law  also 
provided  that  the  banks  might  withdraw  their  notes  from 
circulation  in  whole  or  in  part  by  depositing  them  in  sums 
of  not  less  than  $9,000  with  the  United  States  Treasurer, 
when  they  would  be  allowed  to  take  up  the  bonds  deposited 
to  secure  them. 

In  1875  the  restriction  on  the  amount  of  bank  notes  which 
might  be  issued  was  removed,  and  the   Secretary   of  the 


NATIONAL  BANKING  SYSTEM.  21 

Treasury  was  required  to  retire  legal  tender  notes  to  the 
amount  of  80  per  cent,  of  the  amount  of  national  bank 
notes  thereafter  issued,  until  the  amount  of  legal  tender 
notes  should  be  reduced  to  $300,000,000.  This  latter  pro- 
vision for  the  retirement  of  the  greenbacks  was  repealed  in 
1878,  leaving  the  amount  of  greenbacks  then  and  now  out- 
standing at  $346,681,016. 

Under  the  act  of  1863  national  banks  were  authorised  to 
do  business  for  a  period  of  twenty  years  only,  so  that  in 
1883,  without  further  legislation,  those  banks  organized  in 
1863  would  have  been  obliged  to  reorganize  or  retire  from 
business.  In  1882,  therefore,  an  act  was  passed  authorizing 
the  extension  of  the  bank  charters  for  another  period  of 
twenty  years.  In  speaking  of  this  act  Bolles  says  in  his 
"Financial  History,"  pages  308,  309: 

"The  first  provision  of  the  bill  authorized  the  banks  to 
continue  for  another  period  of  twenty  years  provided  the 
shareholders  owning  not  less  than  two-thirds  of  the  capital 
stock  consented.  The  opponents  of  the  banks  maintained 
that  the  proposed  legislation  was  unnecessary  because  the 
banks  when  their  charters  expired  could  liquidate  and  re- 
organize. This  was  so,  but  if  they  had,  their  undivided 
surplus  and  profits,  which  amounted  to  $184,000,000,  would 
have  been  divided,  and  the  reorganized  banks  would  have 
had  only  their  capital.  It  was  very  desirable  to  retain  this 
reserve  of  earnings.  The  national  banking  law  had  wisely 
provided  that  every  bank  before  declaring  a  dividend 
'  should  carry  one-tenth  part  of  its  net  profits  of  the  pre- 
ceding half  year  to  its  surplus  fund,  until  the  same  should 
amount  to  20  per  cent,  of  its  capital  stock.'  The  banks 
having  obeyed  the  law  had  the  above  sum  after  paying 
$85,845,169  of  losses  between  1876  and  1879." 


Note. — Prior  to  1883  a  tax  of  one  per  cent,  was  collected  on  the  de- 
posits of  national  banks  and  also  on  that  portion  of  their  capital  not  in- 
vested in  Government  bonds.  By  an  act  passed  in  March,  1883,  the 
banks  were  released  from  further  payment  of  this  tax.  See  Finance 
Report  for  1883,  page  512. 


22  A  RESUME  OF  THE 

CHAPTER  III. 

National  Bank  Notes  Not  Money. 

Having-  thus  traced  the  general  outlines  of  its  structure, 
let  us  to  proceed  to  the  consideration  of  the  more  impor- 
tant objections  to  this  banking  system,  which,  in  the  light 
of  reason  and  experience,  seem  to  challenge  our  attention. 

The  first  objection  to  this  system  of  furnishing  a  circu- 
lating medium  to  be  noted  is  that  national  bank  notes  lack 
one  of  the  essential  qualities  of  money.  They  are  not  a 
legal  tender,  and  can  not  be  used  as  such  in  the  payment  of 
debts.  If  one  desires  to  make  a  lawful  tender  in  discharge 
of  a  debt,  he  must  tender  lawful  money  of  the  United 
States — either  gold,  silver  or  greenbacks. 

In  other  words,  he  must  tender  that  which  the  law  has 
declared  to  be  a  legal  tender,  or  he  cannot  be  heard  to 
plead  in  any  court  that  he  has  made  a  tender  of  payment 
of  his  debt.  The  fact  that  the  Government  stands  ready  to 
redeem  and  guarantees  the  redemption  of  national  bank 
notes  in  lawful  money  of  the  United  States,  causes  them  to 
be  very  generally  accepted  in  lieu  of  such  lawful  money, 
although  they  are  not  such  in  reality.  Attorneys  are  often 
obliged  to  exchange  national  bank  notes  for  lawful  money 
of  the  United  States  in  order  to  make  a  legal  tender. 

A  national  bank  note  is  nothing  more  than  the  written, 
or  rather  printed,  promise  of  the  bank  to  pay  money.  If 
the  reader  have  a  bank  note  in  his  possession  he  can  verify 
this  statement  in  a  moment  by  examining  the  note.  The 
bank  note  differs  in  no  important  respect  from  the  promis- 
sory note  which  the  borrower  gives  the  bank  in  exchange 
for  it,  except  in  this, — that  the  people  of  the  United  States 
guarantee  the  payment  of  the  bank  note,  and  thereby  en- 
able the  banker  to  draw  interest  on  his  promissory  note, 
while  the  borrower  must  pay  interest  on  his ! 


NATIONAL,  BANKING  SYSTEM.  23 

In  order  that  the  reader  may  more  clearly  see  that  such 
is  the  essential  character  of  these  notes,  the  following  ex- 
tracts from  the  law  are  given  verbatim  : 

"SEC.  20.  And  be  it  further  enacted,  that  after  any  such 
association  shall  have  caused  its  promise  to  pay  such  notes 
on  demand  to  be  signed  by  the  president  or  vice-president 
and  cashier  thereof  in  such  manner  as  to  make  them  obliga- 
tory promissory  notes  payable  on  demand  at  its  place  of  busi- 
ness, such  association  is  hereby  authorized  to  issue  and  cir- 
culate the  same  as  money.  And  the  same  shall  be  received 
at  par  in  all  parts  of  the  United  States  in  payment  of  taxes, 
excises,  public  lands  and  all  other  dues  to  the  United  States, 
except  for  duties  on  imports,  and  also  for  all  salaries  and 
other  debts  and  demands  owing-  by  the  United  States  to  in- 
dividuals, corporations  and  associations  within  the  United 
States,  except  interest  on  the  public  debt." 

Section  25  provides  that  if  notes  of  any  bank  be  not  paid 
on  demand  they  may  be  protested  by  a  notary  public,  etc. — 
just  as  other  promissory  notes  are  protested. 

In  a  speech  delivered  in  the  Senate,  February  3,  1873, 
Judge  Allen  G.  Thurman  gave  his  opinion  upon  this  point 
in  the  following  language  : 

"Now  which  of  the  two  is  the  best  currency,— the  bank 
notes  or  the  Government  greenbacks  ?  In  the  estimation 
of  the  people,  the  greenbacks  are  the  best ;  in  the  estima- 
tion of  the  law,  the  greenbacks  are  the  best,  because  it  is 
provided  that  the  bank  note  may  be  redeemed  by  the  green- 
back. Why  then  should  you  compel  the  retiring  of  the 
greenbacks  to  make  room  for  just  an  equal  amount  of  na- 
tional bank  currency?  Why  should  you  retire  all  the 
greenbacks  to  make  room  for  just  an  equivalent  amount  of 
the  notes  of  private  individuals,  upon  which  they  draw  in- 
terest, although  they  are  their  debts?  I  know  this  goes 
very  deep.  It  goes  to  the  question  whether  or  not  a  bank 
note  circulation  is  an  advisable  thing.  I  know  very  well 
that  a  bank  paper  circulation  is  a  means  by  which  the  an- 
nual products  of  the  country  are  distributed  in  a  most  un- 
equal manner.  I  know  that  it  is  a  monopoly  and  a  favor- 
itism which  enables  one  class  of  men  to  draw  interest  upon 
what  they  owe,  while  all  other  men  have  to  pay  interest 


24  A  RESUME  OF  THK 

upon  what  they   owe;    and   I   never,    therefore,  have  been 
much  in  favor  of  such  a  currency." 

Soon  after  the  national  bank  law  went  into  effect,  a  com- 
mittee of  the  New  York  clearing-  house  said  in  a  report:* 

"If  more  currency  is  required  for  the  legitimate  business 
of  the  country,  why  should  not  the  Government  avail  itself 
of  the  opportunity  to  issue  a  further  amount  of  legal  ten- 
der notes?  They  furnish  a  currency  of  uniform  value  in 
every  part  of  the  Union.  Whereas  the  national  bank  cur- 
rency is  not  lawful  money.  Why  should  the  Government 
be  willing-  to  g"ive  the  people  an  inferior  currency  when  it 
commands  a  superior  one?" 

What  advocate  of  the  banks  will  furnish  a  sufficient  an- 
swer to  this  question  asked  by  the  committee  thirty  years 
ag-o:  "Why  should  the  Government  be  willing-  to  g"ive  the 
people  an  inferior  currency  when  it  c&mmands  a  superior 
one  ?" 


CHAPTER  IV. 

The  National  Banking  System  Costs  Too  Much. 

The  next  objection  to  be  noted  to  the  national  banking 
system  is  that  it  costs  too  much. 

Someone  has  said  that  a  thing-  may  be  a  g-ood  thing-  and 
yet  cost  too  much.  It  may,  therefore,  be  worth  while  for 
those  who  believe  that  the  "national  banking-  system  is  a 
g-ood  thing- — in  and  of  itself — to  examine  the  evidence,  and 
see  whether,  after  all,  this  banking  system  is  not  costing 
the  American  people  more  than  it  is  worth. 

As  bearing  upon  this,  and  other  questions,  the  writer 
feels  warranted  in  making  the  following  somewhat  ex- 
tended quotation  from  a  speech  delivered  by  Gen.  B.  F. 
Butler  in  Congress  in  1867  on   the  bill  to  change  the  law 


*  Bolle's  "Financial  History,"  p.  220. 


NATIONAL  BANKING  SYSTEM.  25 

and  make  the  5-20  bonds  payable  in  coin:* 

"It  is  said  the  banks  furnish  the  best  currency  this 
country  ever  saw,  because  it  is  the  same  in  New  Orleans, 
Boston,  New  York  and  Chicago.  But  what  is  the  currency  ? 
It  is  the  notes  of  the  bank.  What  makes  them  equal  all 
over  this  country  ?  It  is  the  endorsement  of  the  United 
States.  Therefore,  as  the  United  States  is  primarily  re- 
sponsible for  all  the  circulation,  we  ought  to  supply  the 
currency  to  the  people,  and  receive  the  profit  of  doing  it. 

"Again  it  is  said  that  this  banking  system  is  a  better  one 
than  we  ever  had.  For  some  purposes,  so  it  is.  And  it  is 
said  further,  that  if  we  do  not  encourage  it,  we  shall  go 
back  to  the  old  State  bank  system.  No,  Mr.  Chairman, 
never,  never  !  The  day  of  State  banks  has  gone  by.  They 
were  always,  in  my  poor  judgment,  unconstitutional.  But 
they  got  themselves  fastened  on  the  country,  and  there  was 
never  power  enough  until  the  necessities  of  the  country  re- 
quired a  new  system  of  finance,  to  break  off  their  hold. 
We  have  rid  the  country  of  them,  and  the  Congress  of  the 
United  States,  ay,  and  the  good  judgment  of  the  people, 
will  never  permit  that  system  again  to  be  imposed  upon  the 
country. 

"What  is  the  next  proposition?  Why  it  is  said  we  must 
not  interfere  with  the  national  banks,  because  they  patrioti- 
cally helped  us  during  the  war.  Upon  that  I  take  issue  with 
each  and  every  advocate  of  the  banks.  On  the  contrary, 
they  helped  themselves,  not  us.  It  is  said  they  loaned  mon- 
ey to  the  Government.  How  did  they  do  it  ?  L,et  me  state 
the  way  a  national  bank  got  itself  into  existence  in  New 
England  during  the  war  when  gold  was  200  and  the  5-20 
bonds  were  at  par  in  currency,  or  nearly  so.  A  company  of 
men  got  together  $300,000  in  national  bank  bills  and  went  to 
the  Register  of  the  Treasury  with  gold  at  200  and  bought 
United  States  bonds  at  par.  They  stepped  into  the  office  of 
the  Comptroller  of  the  Currency  and  asked  to  be  established 
as  a  national  bank,  and  received  from  him  $270,000  in  cur- 
rency with  interest  upon  pledging  these  bonds  of  the  United 
States  they  had  just  bought  with  their  $300,000  of  the  same 
kind  of  money.  Now  let  us  balance  the  books,  and  how 
does  the  account  stand  ?  Why  the  United  States  Govern- 
ment receives  $30,000  in  national  bank  bills  more  from  the 

*  Butler's  Book,  p.  943. 


26  A  RESUME  OF  THE 

banks  than  it  gave  them  in  bills ;  in  other  words,  it  bor- 
rowed of  the  bank  $30,000  in  currency,  for  which  in  fact  it 
paid  $18,000  a  year  in  gold  interest,  equal  to  $36,000  in  cur- 
rency, for  the  use  of  this  $30,000.  But  the  thing  did  not 
stop  there.  The  gentlemen  were  shrewd  financiers.  Their 
bank  was  a  good  one.  They  went  to  the  Secretary  of  the 
Treasury  and  said  :  '  L,et  our  bank  be  made  a  public  deposi- 
tory.' Very  well,  it  was  a  good  bank  ;  the  managers  were 
good  men ;  there  was  no  objection  to  the  bank.  It  was 
made  a  public  depository,  and  thereupon  the  commissaries, 
the  quartermasters,  the  medical  director  and  purveyor  were 
all  directed  to  deposit  their  public  funds  in  this  bank.  Very 
soon  the  bank  found  that  they  had  a  line  of  steady  deposits 
belonging  to  the  Government  of  about  a  million  dollars,  and 
that  the  $270,000  they  had  received  from  the  Comptroller  of 
the  currency  would  substantially  carry  on  their  daily  busi- 
ness, and  as  the  Government  gives  three  days  on  all  its 
drafts,  if  the  bank  were  pressed,  it  was  easy  enough  to  go 
on  the  street  if  they  had  good  security.  They  took  the  mil- 
lion of  Government  money  deposited  with  them,  and  loaned 
it  to  the  Government  for  the  Government's  own  bonds,  and 
received  therefore  $60,000  more  interest  in  gold  for  the  loan 
to  the  Government  of  its  own  money,  which  in  currency  was 
equal  to  $120,000.  So  that  when  we  come  finally  to  balance 
the  books,  the  Government  is  paying  $156,000  a  year  for  the 
loan  of  $30,000  !  And  this  is  the  system  which  is  to  be  fas- 
tened forever  on  the  country  as  a  means  of  furnishing  a 
circulating  medium?  This  only  using  round  numbers  for 
the  purpose  of  illustration  is  an  actual  and  not  a  feigned 
occurrence.  *  *  *  Sir,  am  I  slandering  these  institu- 
tions ?  Are  they  not  making  money  at  a  rate  which  is  be- 
yond all  precedent  ?  *  *  *  I^et  us  take  the  banks' own 
exhibit  of  themselves.  I  hold  in  my  hand  the  abstract  of 
reports  of  national  banking  associations  for  the  1st  of  Octo- 
ber last.  Let  us  see  their  condition.  They  have  $419,000,- 
000  capital  stock  paid  in.  They  have  been  in  operation  on 
an  average  of  less  than  four  years.  They  have  divided 
from  12  to  20  per  cent.,  about  12  in  New  England,  and  from 
15  to  20  where  money  is  scarcer  and  the  rate  of  interest  rules 
higher.  In  addition  to  these  dividends  take  their  own  state- 
ments :  "  Surplus  fund,  $66,000,000  ;  undivided  profits,  $33,- 
000,000 ;"  showing  that  they  have  got  after  all  these  divi- 
dends nearly  25  per  cent,  of  surplus  of  that  capital  stock 
laid  away.     What  other  business  will  allow  a  yearly  divi- 


NATIONAL  BANKING  SYSTEM.  27 

dend  of  from  15  to  25  per  cent,  and  a  surplus  accumulation 
in  four  years  of  25  per  cent,  on  the  capital  ?  And  from 
whom  and  from  where  do  all  these  profits  come  ?  They 
come  ultimately  from  where  all  taxation,  all  profits,  all  pro- 
ductions must  come,  the  laborers  of  the  country,  and  no- 
where else.  And  we  are  asked  here  to  perpetuate  a  system 
which  takes  these  immense  profits  from  the  labor  of  the 
country  and  puts  them  into  the  hands  of  capitalists,  with- 
out a  pretense  of  adequate  benefit  received  by  the  people." 

In  the  above  speech  General  Butler  shows  what  the  na- 
tional banking-  system  was  costing-  the  Government  and  the 
people  during-,  and  immediately  after,  the  war.  L,et  us  now 
see  what  the  expense  has  been  in  recent  years.  In  the  New 
York  World  Almanac  for  1894,  a  table  compiled  from  the 
reports  of  the  Comptroller  of  the  currency  is  given,  showing 
the  profits  of  the  national  banks  of  the  United  States  for  a 
series  of  years.  According-  to  this  table,  in  the  year  1880 
there  were  in  existence  2,072  national  banks,  with  a  capital 
of  $454,215,062,  a  surplus  fund  of  $120,145,649,  and  total  net 
earnings  for  the  fiscal  year  of  $45,186,034. 

In  like  manner  the  number  of  banks  in  existence,  the 
capital,  the  surplus,  dividends  and  total  net  earnings  of  the 
banks  are  given  for  each  year  from  and  including  1881  to 
and  including  1890 — a  period  of  ten  years. 

The  total  net  earnings  of  the  national  banks  for  this  pe- 
riod as  certified  in  their  own  reports  to  the  Comptroller, 
were  $629,831,828.98.  During  this  period  the  number  of 
banks  increased  to  3,353  ;  the  capital  to  $625,089,645,  and  the 
surplus  fund  to  $208,707,786.  The  above-named  amount, 
$629,831,828.98,  represents  only  the  net  earnings  of  these 
banks,  or  the  profits  remaining  after  the  payment  of  all  ex- 
penses and  losses  connected  with  the  business.* 

In  order  to  ascertain  therefore  how  much  tribute  these 
banks  have  drawn  from  the  producing  classes  of  the  nation, 


*  See  Comptroller's  Report  for  1888  p.  73. 


28  A  RESUME  OF  THE 

we  must  add  to  the  above  sum  whatever  amount  they  have 
expended  during-  this  period  in  carrying-  on  their  banking 
business,  and  also  the  losses  they  have  sustained. 

Their  expenses  consist  chiefly  of  the  salariespaid  to  their 
presidents,  cashiers,  tellers,  bookkeepers,  clerks,  etc. 

Their  losses  are  due  larg-ely  to  the  embezzlements,  defal- 
cations, etc.,  of  their  officers. 

A  table  given  in  the  Report  of  the  Comptroller  for  1893, 
pages  264-273,  shows  that  the  current  expenses  of  the  banks 
for  these  ten  years  amounted  to  $421,575,895.41. 

From  the  Finance  Report  for  1885,  pag-e  130,  we  find  that 
the  losses  of  the  banks  for  the  five  years  from  1880  to  1885 
amounted  to  more  than  $60,000,000, — an  average  yearly  loss 
of  $12,000,000.  This  is  much  less  than  the  losses  from  1876 
to  1879,  when  they  amounted  in  three  years  to  $85,845,169.* 

Assuming-,  however,  that  the  average  yearly  loss  for  these 
ten  years  from  1881  to  1890  was  no  greater  than  for  the  five 
years  from  1880  to  1885,— namely,  $12,000,000  per  year,  we 
have  as  the  amount  of  losses  for  the  period  the  sum  of  $120,- 
000,000. 

Adding-  together  the  losses  of  the  banks,  $120,000,000 ;  the 
expenses  of  the  banks,  $421,575,895.41,  and  the  net  earnings 
of  the  banks,  $629,831,828.98,  we  find  that  the  gross  or  en- 
tire earnings  of  the  banks  during  these  ten  years  amounted 
to  $1,171,407,724.39. 

Ivet  us  try  to  get  some  conception  of  what  these  figures 
signify.  The  distance  from  New  York  to  San  Francisco  is 
about  2,500  miles.  At  a  cost  of  $20,000  per  mile  for  con- 
struction, a  railroad  built  from  New  York  to  San  Fransisco 
would  cost  $50,000,000. 

At  this  estimate  of  cost,  the  amount  of  tribute  paid  to  na- 
tional banks  by  the  people  in  the  decade  from  1880  to  1890  would 


See  Bolle's  "Financial  History,"  p.  303,  309. 


NATIONAL  BANKING  SYSTEM.  29 

have  built  twenty-three  such  railroads  across  the  continent, 
and  left  a  surplus  of  more  than  twenty  million  dollars  ! 

Now  what  have  the  producers  of  the  United  States  received 
in  return  for  this  enormous  sum  paid  to  the  banks  ? 

In  the  first  place,  they  have  received  the  use  of  a  quantity 
of  bank  notes  varying  in  amount  at  different  times  during 
this  period  from  $332,398,922  in  1882  at  the  maximum  to 
$124,958,736  in  1890  at  the  minimum.*  The  circulating-  me- 
dium was  not  increased  to  the  full  extent  of  the  amount  of 
notes  issued  by  the  banks,  however,  inasmuch  as  the  issues 
of  the  banks  drove  five  per  cent,  of  their  amount  in  legal 
tender  notes  out  of  circulation,  and  locked  them  up  in  the 
Treasury  at  Washington,  as  a  redemption  fund. 

In  the  second  place,  as  a  further  consideration,  the  people 
of  the  United  States,  have  been  allowed  to  deposit  their  sav- 
ings in  these  institutions.  These  deposits  however,  having 
no  other  security  than  that  of  the  banks  themselves,  have 
been  frequently  lost  by  the  depositors.  The  Comptroller's 
Report  for  1889  shows  that  depositors  in  national  banks 
had  at  that  date,  lost  deposits  amounting  to  $14,844,988,  an 
average  yearly  loss  of  more  than  half  a  million  dollars  !f 

The  following  statements  taken  from  the  Report  of  the 
Comptroller  for  1884  further  indicate  that  the  privilege  of 
making  deposits  in  these  institutions,  is  of  somewhat  doubt- 
ful value : 

"The  most  notable  national  bank  failure  of  the  year  (1884) 
was  that  of  the  Marine  National  Bank  of  the  City  of  New 
York  which  closed  its  doors  about  11  a.m.  on  the  6th  of  May. 
The  Bank  Examiners  of  the  City  of  New  York  immediate^' 
took  possession  of  the  bank,  and  found  that  it  had  been  in- 
debted to  the  clearing  house  that  day  in  the  sum  of  $55,500. 
The  examiners  also  found  the  account  of  one  firm  overdrawn 
on  the  books  of  the  bank  to  the  amount  of  $766,570.14.     Upon 

*  Comptroller's  Report  for  1893,  pages  83,  84. 
t  Finance  Report,  1889,  page  395. 


30  A  RESUME  OF  THE 

further  examination  it  was  found  that  this  firm  owed  a  total 
of  about  $2,430,500,  being-  more  than  six  times  the  capital 
of  the  bank.  A  portion  of  this  indebtedness  was  in  the  name 
of  other  parties,  clerks  in  their  office,  and  relations  of  the 
firm.  An  examination  of  the  minutes  of  the  board  of  di- 
rectors of  the  bank  shows  that  on  the  11th  of  April,  1884, 
twenty-five  days  before  the  failure  of  the  bank,  the  com- 
mittee of  examiners  appointed  by  the  board  of  directors  re- 
ported that  they  had  examined  the  securities,  counted  the 
bills  and  specie,  and  examined  the  balances  on  the  ledgers 
of  the  bank,  and  found  the  recorded  statement  of  the  7th 
of  April,  1884,  to  be  correct." 

Another  statement  made  by  the  Comptroller  in  the  same 
report  is  as  follows:  "The  trouble  at  the  Second  National 
Bank  grew  out  of  a  defalcation,  amounting  to  $3,185,000,  by 
the  president  of  the  bank." 

Any  number  of  instances  similar  to  the  above  might  be 

given,  if  space  permitted.     It  is  unnecessary,  however,  as 

the  facts  are  matters  of  common  notoriety. 

The  above  described  are  the  benefits  which  the  national 
banks  have  conferred  upon  the  people  of  the  United  States 
for  a  period  of  ten  years  in  consideration  for  the  sum  of 
$1,171,407,724.39  duly  received  of  said  people  of  the  United 
States  to  the  satisfaction  of  said  national  banks ! 

Is  more  testimony  needed  to  show  that  this  system  of 
supplying  a  circulating  medium  costs  too  much  ? 

Would  it  not  have  been  fortunate  for  the  people  if  Con- 
gress had  acted  in  accordance  with  the  advice  of  Thaddeus 
Stevens,  when  he  said  : 

"How  would  national  bank  notes  be  any  better  than  the 
Government's  own  notes?  The  security  of  the  Govern- 
ment is  equal  to  that  of  the  banks,  and  would  give  as  much 
currency.  To  the  banks  I  can  see  its  advantage.  They  would 
have  the  whole  benefit  of  the  circulation  without  interest, 
and  at  the  same  time  would  draw  interest  on  the  Govern- 
ment bonds  from  the  time  they  got  the  notes.  Now,  it  is 
very  plain  that  if  the  United  States  issued  those  notes  di- 
rect, they  (the  United  States)  would  have  the  benefit  of  the 
whole  circulation." 


NATIONAL  BANKING  SYSTEM.  31 

CHAPTER  V. 

The  National  Banking  System  Fosters  and   Supports  the  Gambling 

Operations  of  Wall  Street. 

Another  objection  to  the  national  banking  system  is  that 
it  encourages  and  promotes  speculation.  It  furnishes  the 
means  whereby  the  brokers  and  operators  of  Wall  Street 
gamble  in  grain  and  stocks,  "bullv  and  "bear"  and  "corner" 
the  markets,  raise  and  lower  the  price  of  wheat,  corn, 
sugar,  securities,  etc.,  and  play  havoc  with  the  legitimate 
business  of  the  country. 

As  the  reader  has  observed,  the  law  provides  for  the  de- 
posit by  country  banks  of  two-fifths  of  the  reserve  fund  re- 
quired to  be  kept  by  them  to  secure  deposits,  with  the  banks 
in  the  reserve  cities.  It  also  provides  for  the  deposit  by  the 
banks  in  the  reserve  cities  of  one-half  of  the  reserve  fund 
required  to  be  kept  by  them  to  secure  deposits  (including 
the  deposits  of  country  banks)  with  the  banks  in  New  York 
City;  and  that  banks  in  New  York  City  shall  keep  on  hand  25 
per  cent,  of  all  deposits  made  with  them  to  secure  such  de- . 
"posits.  This  necessarily  makes  New  York  the  center,  and 
the  banks  of  New  York  the  custodians  of  a  very  large  por- 
tion of  the  entire  bank  reserves  of  the  country. 

This  immense  fund  concentrated  in  the  City  of  New  York 
cannot  be  safely  loaned  by  the  New  York  banks  upon  time, 
however  short.  It  can  only  be  loaned  upon  "call."  In 
other  words,  it  can  only  be  loaned  to  the  speculators.  With 
this  money  the  speculator  buys  stock  upon  the  "stock  ex- 
change," and  pledges  it  with  the  .bank  as  security  for  his 
loan,  and  relies  upon  his  ability  to  sell  again  whenever 
called  upon  by  the  bank  to  pay  the  loan. 

Bolles  says  in  his  "Financial  History,"  page  349  : 

"The  reserves  which  the  banks  outside  of  New  York  City 
were  required  to  keep  were  sent  in  large  amounts,  though 


32  A  RESUME  OF  THE 

irregularly,  to  New  York.  The  banks  in  New  York,  having 
no  legitimate  way  for  employing  the  money  at  such  times, 
and  threatened  with  the  loss  of  interest  which  they  htd 
promised  to  pay  thereon,  loaned  it  to  stockbrokers.  A  bank 
would  not  have  paid  interest  on  ' 'country  balances,"  as  they 
were  called,  if  they  could  not  be  used,  and  the  banks  would 
not  have  dared  to  loan  a  considerable  portion  of  them  on 
time.  All  loans  on  call  were  to  speculators.  No  merchant 
or  manufacturer  would  borrow  in  that  way.  This  striking 
fact,  therefore,  appears — while  the  banking  law  wisely  pro- 
vided for  the  maintenance  of  an  adequate  reserve,  a  very 
large  portion  of  it  was  actually  used  by  New  York  specula- 
tors. Though  this  fact  was  well  known  and  caused  much 
comment,  no  legislation  was  attempted." 

The  Comptroller  in  his  Report  for  1873,  page  92,  says  : 

"The  present  financial  crisis  may  in  a  great  degree  be  at- 
tributable to  the  intimate  relations  of  the  banks  of  the  City 
of  New  York  with  the  transactions  of  the  Stock  Board,  more 
than  one-fourth,  and  in  many  instances  nearly  one-third,  of 
the  bills  receivable  of  the  banks  since  the  late  civil  war  hav- 
ing consisted  of  demand  loans  to  brokers  and  members  of 
the  Stock  Board,  which  transactions  have  a  tendency  to  im- 
pede and  unsettle  instead  of  facilitating  the  legitimate  busi- 
ness interests  of  the  whole  country." 

The  following  incident  is  related  in  Bolle's  "Financial 

History,"  page  364  : 

"An  eminent  merchant  of  New  York,  and  for  several 
years  a  member  of  Congress,  related  the  following  story, 
which  illustrated  the  discrimination  made  between  the  two 
classes  of  borrowers  :  'A  pet  firm  of  brokers  who  went  down 
in  the  crash  of  1873  were  found  to  be  in  debt  nearly  $15,000,- 
000.  That  firm  had  reorganized  only  a  month  or  two  before 
with  a  capital  of  one  or  two  hundred  thousand  dollars;  but 
it  was  able  to  borrow  of  banks  and  others  on  stock  held  only 
for  speculation  about  $14,000,000.  At  the  same  time  a  com- 
mercial firm  of  long  standing,  and  having  more  than  half  a 
million  of  capital,  applied  to  one  of  the  largest  national 
banks  for  a  discount  of  $24,000  of  business  paper  having  less 
than  thirty  days  to  run,  and  was  politely  put  off  with  one- 
half  the  amount.  The  broker  for  gamblers  got  $14,000,000. 
The  merchant  for  honest  business  got  $12,000,  or  less  than  a 
thousand  for  a  million." 


NATIONAL,  BANKING  SYSTEM.  33 

This  money  furnished  for  speculative  purposes  is  loaned 
by  the  banks  at  a  much  lower  rate  of  interest  than  is 
charged  merchants  and  others  engaged  in  legitimate  busi- 
ness enterprises.  If  the  reader  will  consult  the  New  York 
Finance  Report  of  his  daily  newspaper,  he  will  probably 
find  money  to  loan  on  "call"  quoted  as  "easy"  at  rates  not 
more  than  one-third  or  one-fourth  as  high  as  those  quoted 
for  loans  on  "prime  mercantile  paper." 

A  table  in  the  Comptroller's  Report  for  1893,  pages  117, 
118,  classifies  the  loans  made  by  the  banks  of  the  reserve 
cities  on  a  certain  day  in  each  year  from  1889  to  1894  inclu- 
sive. This  table  shows  that  45  national  banks  in  New 
York  City  had  loans  "on  call"  outstanding  on  Sept.  30, 
1889,  with  stocks,  bonds,  etc.,  as  collateral  security, 
amounting  to  $109,579,495 ;  on  Oct.  2,  1890,  $102,372,932 ;  on 
Sept.  25,  1891,  $113,787,196;  on  Sept.  30,  1892,  $117,796,025, 
and  on  Oct.  3,  1893,  $94,897,446. 

The  "call"  loans  of  the  Chicago  banks  on  the  above 
dates  ranged  from  $12,000,000  to  $18,000,000,  in  round  num- 
bers. 

Thus  an  average  of  at  least  $100,000,000  is  by  this  bank- 
ing system  constantly  filtered  into  the  banks  of  New  York, 
and  through  them  into  the  hands  of  the  gamblers  of  Wall 
Street,  to  be  used  at  merely  nominal  rates  of  interest,  in 
"cornering"  the  markets,  raising  and  depressing  prices, 
and  making  wreck  and  ruin  of  honest  enterprise. 


Note.— In  1887  the  banks  of  the  cities  of  Chicag-o  and  St.  Louis  were 
added  to  those  of  New  York  as  depositories  for  the  reserves  of  the 
banks  of  the  reserve  cities,  but  are  used  as  such  to  a  very  limited  extent 
only,  as  appears  from  the  reports  of  the  Comptroller. 


34  A  RESUME  OF  THE 

CHAPTER  VI. 

National  Banks  Inflate  and  Contract  the  Currency,  and 

Produce  Panics. 

The  next  and  perhaps  the  most  serious  objection  to  this 
banking-  system  is  that  it  permits  of  no  stability  in  the  vol- 
ume of  the  circulating-  medium.  Under  its  operation  the 
supply  of  currency  is  continually  subject  to  expansions 
and  contractions. 

By  the  advocates  of  the  banks  this  elasticity,  as  it  is 
Called,  is  lauded  as  one  of  the  most  beneficent  features  of 
the  system.  On  the  contrary,  however,  its  effect  upon  the 
business  interests  of  the  country  is  pernicious  in  the  ex- 
treme. 

As  we  have  seen,  the  volume  of  bank  notes  issued  during- 
the  period  of  ten  years  from  1880  to  1890  varied  from  $332,- 
398,922  in  1882,  to  $124,958,736  in  1890. 

And  inasmuch  as  the  banks  are  not  required  to  issue  any 
bank  notes,  it  follows  that  the  amount  of  bank  notes  which 
the  banks  may  issue  has  a  possible  variation  of  from  noth- 
ing up  to  ninety  per  cent,  of  the  par  value  of  the  aggregate 
of  United  States  bonds. 

But  aside  from  the  power  to  increase  or  decrease  in  this 
way  the  sum  total  of  the  volume  of  the  circulating-  medium, 
the  banks  have  a  still  greater  and  more  pernicious  power  in 
their  ability  to  suddenly  contract  the  volume  of  money  in 
actual  circulation  by  the  withdrawal  from  circulation  of 
their  note  issues.  All  bank  notes  are  loaned  into  circulation. 
They  get  into  circulation  in  no  other  way.  These  loans  are 
made  on  the  average  for  not  longer  than  sixty  days.  By 
simply  refusing  to  renew  their  loans,  therefore,  compelling 
creditors  to  pay,  and  locking  up  the  money,  the  banks  may, 
within  a  short  period  of  time,  withdraw  from  circulation  an 
amount  of  currency  equal  to  their  entire  note  issues.     In 


NATIONAL  BANKING  SYSTEM.  35 

this  fact  lies  the  explanation  mainly  of  the  constantly  re- 
curring- panics  to  which  this  conntry,  in  common  with  oth- 
ers using-  the  British  system  of  bank  issues  as  a  substitute 
for  money,  has  been  subject. 

This  power  of  suddenly  contracting  the  currency  is  in- 
herent in  all  banks  of  issue,  and  has  been  repeatedly  exer- 
cised by  all  such  banks,  evidence  of  which  will  be  hereafter 
furnished. 

In  order  to  understand  the  effect  of  a  contraction  of  the 
currency,  it  is  necessary  to  have  a  clear  conception  of  the 
nature  and  functions  of  money.  A  brief  consideration, 
therefore,  seems  to  be  demanded  of  the  question, 

What  Is  Money? 

Money  is  a   Creation  of  Law. 

There  is  no  money  other  than  fiat  money.  The  Constitu- 
tion of  the  United  States  provides  that  Congress  shall  have 
the  power  "to  coin  money  and  regulate  the  value  thereof." 
In  its  decision  of  the  legal  tender  case  brought  to  test  the 
question  of  the  constitutionality  of  the  greenback,  the  Su- 
preme Court  has  said  :*  "If  the  power  to  declare  what  is 
money  be  not  in  Congress,  it  is  annihilated,"  thus  holding 
in  the  strongest  possible  language  that  Congress  alone  has 
the  power  to  make  or  create  money,  and  that  it  can  not  del- 
egate this  power  to  any  other  agency.  In  pursuance  of  this 
power  Congress  has  by  law  declared  that  the  dollar  shall  be 
the  unit  of  accounts,  the  unit  of  value;  that  the  dime  shall 
be  the  one-tenth  part  of  a  dollar ;  that  the  cent  shall  be  the 
one-hundredth  part  of  a  dollar,  etc. 

Money  as  money,  has  no  intrinsic  value.  Its  value  is 
wholly  representative,  being,  as  the  Supreme  Court  has 
said,  a  creation  of  law. 


*  See  12th  of  Wallace  Reports,  page  545. 


36  A  RESUME  OF  THE 

The  value  of  a  dollar  depends  in  no  respect  upon  the  ma- 
terial upon  which  the  stamp  evidencing-  the  fiat  of  the  Gov- 
ernment is  fixed.  Place  a  gold  dollar  upon  the  anvil,  strike 
it  with  a  sledge  hammer  and  entirely  efface  the  stamp  of 
the  Government  which  declares  it  to  be  a  dollar,  and  you 
have  left  only  a  mass  of  metal  which  has  no  monetary  pow- 
er or  function  whatever,  and  which  no  man  would  take,  or 
could  be  compelled  to  take,  as  money.  The  stroke  of  the 
hammer,  which  destroyed  no  particle  of  gold,  and  took  from 
the  metal  no  atom  of  "intrinsic"  value,  obliterated  all  evi- 
dence of  the  fiat  of  the  Government  which  alone  makes 
money. 

A  hundred  copper  cents  is  coined  from  metal  worth  in  the 
market  but  a  few  cents,  and  yet  a  hundred  copper  cents  is 
the  full  and  exact  equivalent  in  monetary  value  of  a  gold 
dollar.  The  function  of  money  is  to  represent  and  exchange 
values,  and  not  to  contain  them.  Money  is  never  redeemed, 
except  when  exchanged  for  something  of  real  value.  The 
possession  of  millions  of  gold  dollars  would  in  no  way  bene- 
fit a  man  unless  he  could  exchange  them  for  those  things 
which  minister  to  his  wants. 

Of  what  use  would  the  possession  of  such  millions  be  to  a 
man  shipwrecked  upon  a  desert  island? 

The  value  to  him  of  these  or  any  other  dollars  arises 
from  the  fact  that  by  operation  of  law  he  is  enabled  to  ex- 
change them  for  things  of  real  value. 

This  fact  is  recognized  even  by  those  who  for  selfish  pur- 
poses would  mislead  the  people  into  the  belief  that  paper 
money  must  be  established  upon  a  gold  basis  in  order  to  be 
of  any  value.  Thus  Hugh  McCulloch,  an  ardent  advocate 
of  the  gold  basis  theory,  said  in  one  of  his  reports  as  Comp- 
troller of  the  Currency: 

"Money,  whether  it  be  in  the  form  of  the  precious  metals 
or  of  bank  paper,  is  created  by  law.     Gold  and  silver  are 


NATIONAL  BANKING  SYSTEM.  37 

not  money  until  coined  and  made  such  by  the  authority  of 
the  Government.  It  is  not,  like  merchandise  or  other  per- 
sonal property,  the  result  of  man's  industry,  but  a  creation 
of  the  Government."* 

Money,  then,  is  a  creation  of  law,  the  only  functions  of 
which  are  to  represent  and  to  effect  the  exchange  of  real 
values.  If  then  the  value  of  a  dollar  does  not  depend  upon 
the  material  upon  which  the  stamp  of  the  Government  is 
placed,  upon  what  does  it  depend  ? 

The  value  of  a  dollar  consists  in  its  purchasing  and  debt- 
paying  power,  which  is  determined  by  the  number  of  dollars 
in  circulation  available  for  the  purchase  of  property,  and  the 
payment  of  debts,  as  compared  with  the  total  amount  of  prop- 
erty {the  purchase  and  sale  of  which  is  to  be  effected),  and  the 
aggregate  of  debts  due. 

To  use  an  illustration,  let  us  suppose  that  at  a  certain 
time,  there  being-  no  debts  to  liquidate,  the  entire  amount 
of  property  for  sale  consists  of  ten  thousand  bushels  of 
wheat,  and  that  the  entire  amount  of  money  in  circulation 
available  for  the  purchase  of  this  property  is  ten  thousand 
dollars. 

What  would  be  the  purchasing  power  or  value  of  each 
dollar  ?  Evidently  one  bushel  of  wheat.  Thus  the  price  of 
wheat,  determined  by  the  ratio  between  the  number  of  dol- 
lars and  the  number  of  bushels  would  be  one  dollar  per 
bushel. 

Now  let  us  suppose  that  instead  of  ten  thousand  dollars, 
there  are  only  five  thousand  dollars  available  for  the  pur- 
chase of  these  commodities,  the  ten  thousand  bushels  of 
wheat,  what  then  is  the  purchasing  power  or  value  of  each 
dollar?  Evidently  two  bushels  of  wheat,  or,  in  other 
words,  wheat  is  worth  but  fifty  cents  per  bushel. 

Thus  a  contraction  of  the  currency  increases  the  purchas- 


'■  See  Finance  Report  for  1863,  pag-e  54. 


38  A  RESUME  OF  THE 

ing  power  of  each  dollar,  and  decreases  the  price  of  all 
purchasable  commodities.  A  contraction  of  the  currency, 
therefore,  adds  to  the  burden  of  every  debtor  by  compelling 
him  to  part  with  a  greater  quantity  of  real  values  in  order 
to  obtain  the  dollars  with  which  alone  he  can  discharge  his 
debt.  But  aside  from  this,  a  contraction  of  the  currency 
has  the  yet  more  serious  effect  of  stopping  business.  Money 
being  the  only  recognized  medium  for  the  exchange  of 
commodities,  is  "the  life  blood  of  trade,"  and  whenever  its 
volume  is  reduced  so  that  not  enough  is  flowing  in  the 
channels  of  trade  to  effect  the  exchanges  of  the  people, 
those  exchanges  must  necessarily  be  curtailed  to  an  extent 
corresponding  to  the  diminution  in  the  volume  of  the  circu- 
lating medium. 

The  effect  of  a  gradual  contraction  of  the  currency  is  a 
gradual  prostration  of  business,  while  a  sudden  and  se- 
vere contraction  causes  a  correspondingly  sudden  derange- 
ment of  business,  the  result  of  which  is  almost  inevitably 
a  panic. 

The  disastrous  results  following  any  general  contraction 
of  the  currency,  however  produced,  have  been  so  often  de- 
scribed that  it  seems  scarcely  necessary  to  marshal  the  au- 
thorities upon  the  question.  A  Congressional  committee 
made  a  thorough  investigation  of  the  subject  in  1877,  and 
in  their  report  said  : 

"Money  is  the  great  instrument  of  association,  the  very 
fibre  of  social  organism,  the  vitalizing  force  of  industry, 
the  protoplasm  of  civilization  and  as  essential  to  its  exist- 
ence as  oxygen  is  to  animal  life.  Without  money  civiliza- 
tion could  not  have  had  a  beginning,  and  with  a  diminish- 
ing supply  it  must  languish  and,  unless  relieved,  finally 
perish.  Falling  prices  and  misery  and  destitution  are  in- 
separable companions.  It  is  universally  conceded  that 
falling  prices  result  from  the  contraction  of  the  money 
volume."* 

*See  Report  U.  S.  Monetary  Commission,  1877,  vol.  1,  page  50. 


NATIONAL  BANKING  SYSTEM.  39 

For  a  few  years  during-  and  immediately  after  the  war, 
the  Government  furnished  directly  to  the  people  a  volume 
of  money  sufficient  to  make  them  practically  independent 
of  bank  issues.  These  years  were  the  most  prosperous  in 
the  history  of  the  Republic. 

John  Sherman,  the  most  pliant  and  effective  tool  the 
money  power  has  ever  had  in  any  country  or  in  any  ag-e,  in 
letters  written  to  his  brother,  General  Sherman,  during-  the 
war,  bears  witness  to  this  fact.  In  one  of  these  letters  he 
says : 

"The  wonderful  prosperity  of  all  classes,  especially  of 
laborers,  has  a  tendency  to  secure  acquiescence  in  all  meas- 
ures demanded  to  carry  on  the  war.  We  are  only  another 
example  of  a  people  growing  rich  in  a  great  war.  And  this 
is  not  shown  simply  by  inflated  prices,  but  by  increased 
productions,  new  manufacturing  establishments,  new  rail- 
roads, houses,  etc.  Indeed,  every  branch  of  business  is  ac- 
tive and  hopeful."* 

Bolles  says  in  his  "Financial  History,"  page  110.  that 
"the  individual  indebtedness  at  the  close  of  the  war  in  1865 
was  small.  Everyone  was  comparatively  free  from  debt." 
The  testimony  of  Secretary  McCulloch  is  recorded  to  the 
same  effect. 

The  cause  of  this  prosperity  is  thus  tersely  expressed  in 
an  article  entitled  "Wall  Street  in  War  Times,"  published 
in  1865  in  Harper's  Magazine: 

"Paper  money  circulated  like  fertilizing  dew  throughout 
the  land,  generating  enterprise,  facilitating  industry,  de- 
veloping internal  trade. "f 

With  the  exception  of  these  few  years,  the  people  of  the 
United  States  have  ever  been  dependent  to  a  large  extent 
for  their  monetary  supply  upon  bank  issues,  as  the  follow- 
ing brief  historical  resume  will  show : 


*  See  Century  Mag-azine  for  March,  1893. 
t  See  Harper's  Magazine,  vol.  30,  page  615. 


40  A  RESUME  OF  THE 

The  first  offspring-  of  the  Bank  of  England  to  obtain  a 
footing-  upon  American  soil  was  the  Bank  of  North 
America.  This  bank  was  org-anlzed  at  Philadelphia  in 
1782.  It  received  charters  both  from  the  United  States  and 
from  the  State  of  Pennsylvania.  This  bank  continued  in 
existence  as  a  State  bank  under  successive  charters  from 
the  State  of  Pennsylvania  until  1864,  when  it  reorganized 
as  a  national  bank,  retaining-  its  original  name,  with  a 
capital  of  a  million  dollars,  and  a  surplus  of  nearly  the 
same  amount.  The  annual  dividends  of  this  bank  from 
1792  to  1875,  84  years,  averaged  within  a  small  fraction  of 
eleven  per  cent.  The  amount  of  its  outstanding  State 
bank  circulation  in  1862  was  $687,000.*  Other  States  fol- 
lowed the  example  of  Pennsylvania  in  establishing  banks. 
Jefferson  estimated  the  number  of  such  banks  in  existence 
in  1815  at  100.  f 

The  first  Bank  of  the  United  States  was  granted  a  char- 
ter by  Congress  in  1791.  Its  incorporation  was  urged  by 
Alexander  Hamilton,  then  Secretary  of  the  Treasury,  while 
it  was  opposed  by  Thomas  Jefferson,  Secretary  of  State, 
and  Edmund  Randolph,  Attorney  General,  in  written  opin- 
ions furnished  at  the  request  of  the  President. 

The  charter  of  this  bank  expired  by  limitation  in  1811. 
An  attempt  was  made  to  renew  the  charter,  but  it  was  un- 
successful. 

In  1816  the  second  Bank  of  the  United  States  was  char- 
tered with  a  capital  stock  of  $35,000,000.  Its  charter  ex- 
pired in  1836.  The  story  of  the  tremendous  struggle  of 
this  bank  for  a  renewal  of  its  charter,  and  of  its  complete 
overthrow,  forms  one  of  the  most  interesting  and  instruc- 
tive chapters  in  American  history. 

After  the  overthrow  of  this  bank  and  until  the  establish- 


*See  Comptroller's  Report  for  1876. 
tBerke3T\s  "  Monej-  Question,"  page  122. 


NATIONAL  BANKING  SYSTEM.  41 

ment  of  the  national  banking  system  in  1863,  State  banks 
held  undisputed  possession  of  the  field.  In  1840  their  num- 
ber had  increased  to  900. 

In  1860  their  bank  note  "promises  to  pay"  in  circulation 
amounted  to  $207,100,000,  an  amount  nearly  identical  with 
that  of  the  present  national  bank  issues. 

The  above  described  were  all  of  them  specie  basis  banks 
of  issue.  They  were  supposed  to  issue  about  three  dollars 
in  bank  notes  for  every  dollar  of  specie  in  their  vaults.  In 
reality,  however,  the  proportion  of  bank  notes  issued  was 
generally  much  greater.  Calhoun,  in  his  works,  vol.  3, 
pages  255,  256,  speaking  of  the  years  1834-35,  says: 

"There  was  then  not  more  than  one  dollar  in  specie  on 
an  average  in  the  banks,  including  the  United  States  Bank 
and  all  for  ten  of  bank  notes  in  circulation,  and  not  more 
than  one  in  eleven  compared  with  the  liabilities  of  the 
banks." 

During  the  entire  period  in  which  these  note-issuing  off- 
springs of  the  Bank  of  England  have  been  in  operation  the 
country  has  been  subjected  to  a  constant  succession  of 
"suspensions  of  payments,"  or  panics.  These  have  oc- 
curred in  greater  or  less  degree  in  the  years  1809,  1814,  1819, 
1825,  1834,  1837,  1839,  1841,  1857,  1861,  1873,  1884  and  1893. 

Inasmuch  as  it  would  be  impossible  within  the  limits  of 
this  work  to  examine  in  detail  into  the  causes  of  each  of 
the  above  panics,  the  writer  will  limit  his  discussion  of  the 
proposition  that 

BANKS   OF   ISSUE   PRODUCE   PANICS 

mainly  to  an  examination  of  four  of  the  most  severe  and 
disastrous  of  these  crises,  namely,  the  panics  of  1837,  1857, 
1873  and  1893.  If  it  be  demonstrated  to  the  satisfaction  of 
the  reader  that  banks  of  issue  have  the  power  to  produce 
panics,  and  that  on  certain  occasions  they  have  exercised 
this  power,  the  question  as  to  how  often  and  to  what  extent 


42  A  RESUME  OF  THE 

they  have  exercised  such  power  on  other  occasions  may  be 
left  for  the  reader  to  determine. 

Before  proceeding-,  however,  to  a  discussion  of  the  panic 
of  1837,  it  may  be  advisable  to  consider  briefly  some  au- 
thorities which  indicate  that  at  a  comparatively  early  pe- 
riod in  our  history  it  was  recognized  that  banks  possessed, 
to  some  extent  at  least,  this  power. 

This  sufficiently  appears  from  the  writings  of  Jefferson 
and  others. 

In  1814  Jefferson  wrote  as  follows  : 

"Everything  predicted  by  the  enemies  of  the  banks  in 
the  beginning  is  now  coming  to  pass.  It  is  cruel  that  such 
revolutions  in  private  fortunes  should  be  at  the  mercy  of 
avaricious  adventurers,  who,  instead  of  employing  their 
capital,  if  any  they  have,  in  manufactures,  commerce  and 
other  useful  pursuits,  make  it  an  instrument  to  burthen  all 
the  interchanges  of  property  with  their  swindling  profits, 
profits  which  are  the  price  of  no  useful  industry  of  theirs." 

At  another  time  he  wrote  : 

"Put  down  the  banks  and  if  this  country  could  not  be 
carried  through  the  longest  war  against  her  most  powerful 
enemy  without  ever  knowing  the  want  of  a  dollar,  without 
dependence  on  the  traitorous  class  of  our  citizens,  without 
bearing  hard  on  the  resources  of  our  people  or  loading  the 
public  with  an  indefinite  burden  of  debt,  I  know  nothing 
of  my  countrymen." 

Again  he  said  :  "  I  sincerely  believe  that  banking  estab- 
lishments are  more  dangerous  than  standing  armies." 

And  again:  "Bank  paper  must  be  suppressed  and  the 
circulation  restored  to  the  Nation,  to  which  it  belongs." 

A  fuller  statement  of  his  views  in  this  regard  is  given  in 
vol.  7,  page  147,  of  his  works,  as  follows: 

"Certainly  no  nation  ever  before  abandoned  to  the  avar- 
ice and  juggling  of  private  individuals  to  regulate,  accord- 
ing to  their  own  interests,  the  quantum  of  circulating  me- 
dium for  the  nation,  to  inflate  by  deluges  of  paper  the  nom- 


NATIONAL  BANKING  SYSTEM.  43 

inal  prices  of  property,  and  then  to  buy  that  property  at 
one  shilling-  on  the  pound,  first  having-  withdrawn  their 
floating  medium,  which  might  endanger  a  competition  in 
the  purchase.  Yet  this  is  what  has  been  done,  and  will 
continue  to  be  done,  unless  sta3-ed  by  the  protecting-  hand 
of  our  legislatures.  The  evil  has  been  produced  by  the  er- 
ror of  their  sanction  of  this  ruinous  machinery  of  banks; 
and  justice,  wisdom,  duty,  all  require  that  they  interpose 
and  arrest  it  before  the  schemes  of  plunder  and  spoliation 
desolate  our  country.  If  we  suffer  the  moral  of  the  present 
lesson  to  pass  away  without  improvement,  by  the  eternal 
suppression  of  bank  paper,  then,  indeed,  is  the  condition  of 
our  country  desperate.  Interdict  forever  to  both  state  and 
national  government  the  power  of  establishing  any  paper 
bank,  for  without  this  interdiction  we  shall  have  the  same 
ebbs  and  flows  of  medium,  and  the  same  revolutions  of  prop- 
erty to  go  through  every  twenty  or  thirty  years.'1'' 

A  legislative  committee  of  the  State  of  New  York  in  1818 
submitted  a  report  from  which  the  following-  extract  is 
taken : 

"Of  all  aristocracies,  none  more  completely  enslave  a 
people  than  that  of  money;  and,  in  the  opinion  of  your 
committee,  no  system  was  ever  better  devised  so  perfectly 
to  enslave  a  community  as  that  of  the  present  mode  of  con- 
ducting banking  establishments.  Like  the  siren  of  the 
fable,  they  entice  to  destroy.  They  hold  the  purse  strings 
of  society,  and  by  monopolizing  the  circulating-  medium  of 
the  country,  they  form  a  precarious  standard  by  which  all 
property  in  the  country— homes,  lands,  debts  and  credits, 
personal  and  real  estate  of  all  descriptions — are  valued, 
thus  rendering-  the  whole  community  dependent  upon  them  ; 
proscribing-  every  man  who  dares  to  oppose  their  practices. 
If  he  happens  to  be  out  of  their  reach,  so  as  to  require  no 
favors  from  them,  his  friends  are  made  the  victims;  so  no 
one  dares  complain.  The  committee,  on  taking-  a  general 
view  of  our  State,  and  comparing  those  parts  where  banks 
have  been  for  some  time  established,  with  those  that  have 
none,  are  astonished  at  the  alarming-  disparity.  They  see, 
in  the  one  case,  the  desolation  they  have  made  in  societies 
that  were  before  prosperous  and  happy  ;  the  ruin  they  have 
wrought  on  an  immense  number  of  the  more  wealthy 
farmers,  and  they  and  their  families  suddenly  hurled  from 


44  A  RESUME  OF  THE 

wealth  and  independence  into  the  abyss  of  ruin  and  despair. 
■*  *  *  Unless  some  judicious  remedy  is  provided  by  leg- 
islative wisdom,  we  shall  soon  witness  attempts  to  control 
all  selections  to  office  in  our  counties — nay,  the  elections  to 
the  very  legislature.  Senators  and  members  of  assembly 
will  be  indebted  to  the  banks  for  their  seat  in  this  capitol; 
and  thus  the  wise  end  of  our  civil  institutions  will  be  pros- 
trated in  the  dust  of  corporations  of  their  own  raising." 

In  a  speech  against  the  rechartering  of  the  second  United 
States  Bank,  Thomas  H.  Benton,  for  thirty  years  an  hon- 
ored member  of  the  United  States  Senate,  said:* 

"  I  object  to  the  continuance  of  this  bank  because  its  ten- 
dencies are  dangerous  and  pernicious  to  the  Government 
and  the  people.  It  tends  to  aggravate  the  inequality  of 
fortunes;  to  make  the  rich,  richer,  and  the  poor,  poorer; 
to  multiply  nabobs  and  paupers,  and  to  deepen  and  widen 
the  gulf  which  separates  Dives  from  I^azurus.  It  tends  to 
make  and  break  fortunes  by  the  flux  and  reflux  of  paper. 
Profuse  issues  and  sudden  contractions  perform  this  opera- 
tion, which  can  be  repeated  in  every  cycle  of  so  many 
years,  at  every  periodical  turn  transferring  millions  from 
the  actual  possessors  of  property  to  the  Neptunes  who  pre- 
side over  the  flux  and  reflux  of  paper.  The  last  operation 
-of  this  kind  performed  by  the  Bank  of  England  about  five 
years  ago  was  described  by  Mr.  Alexander  Baring  in  the 
House  of  Commons  in  terms  which  are  entitled  to  the 
knowledge  and  remembrance  of  the  American  people. 
After  describing  the  profuse  issues  of  1823-24,  Mr.  Baring 
said  :  '  They,  therefore,  all  at  once  gave  a  jerk  to  the  horse 
on  whose  neck  they  had  before  suffered  the  reins  to  hang 
loose.  They  contracted  their  issues  to  a  considerable  ex- 
tent. The  change  was  at  once  felt  throughout  the  country. 
A  few  days  before  that  no  one  knew  what  to  do  with  his 
money.  Now,  no  one  knew  where  to  get  it.  The  London 
bankers  found  it  necessary  to  follow  the  same  course 
toward  their  country  correspondents,  and  these  again 
toward  their  customers,  and  each  individual  toward  his 
debtor.  The  consequence  was  obvious  in  the  late  panic' 
This  is  what  was  done  in  England  five  years  ago,  and  it  is 
what  may  be  done  here  in  every  five  years  to  come  if  the 


*  See  Benton's  "Thirty  Years  in  U.  S.  Senate,''  pag-e  190. 


NATIONAL  BANKING  SYSTEM.  45 

bank  charter  is  renewed.  Sole  dispenser  of  moneys,  the 
game  will  be  in  its  own  hands,  and  the  only  answer  to  be 
g-iven  is  that  to  which  I  have  alluded — 'The  Sultan  is  too 
just  and  merciful  to  abuse  his  powers.'  " 

Other  citations  from  equally  reliable  authorities  might 
be  given  if  space  permitted.  The  opinion  of  President 
Jackson  is  sufficiently  indicated  by  the  extracts  given  from 
the  speeches  of  Mr.  Benton,  who  was  the  active  and  ardent 
champion  of  the  President  in  the  memorable  contest  be- 
tween the  forces  of  the  Administration  and  the  United 
States  Bank. 


CHAPTER  VII. 

The  Panic  of  1837. 

Coming  now  to  the  examination  of  the  evidence  bearing- 
upon  the  question  as  to  whether  banks  of  issue  were  in  any 
degree  responsible  for  the  disastrous  crisis  of  1837,  Senator 
Benton  is  again  cited  as  a  witness. 

In  1838  in  discussing  the  panic  of  the  preceeding  year,  Mr. 
Benton  used  the  following  language  :* 

"  Banks  of  circulation  are  banks  of  hazard  and  failure.  It 
is  an  incident  of  their  nature.  The  Bank  of  Kngland,  the 
great  mother  of  banks  of  circulation,  besides  an  actual  stopp- 
age of  a  quarter  of  a  century,  has  had  her  crisis  and  convul- 
sion in  average  periods  of  seven  or  eight  years  for  the  last 
half  century— in  1783,  '93,  '97,  1814,  '19,  '25,  '36— and  has  only 
been  saved  from  repeated  failure  by  the  powerful  support  of 
the  British  government,  and  profuse  supplies  of  exchequer 
bills.  Her  numerous  progeny  of  private  and  joint  stock 
banks  of  circulation  have  had  the  same  convulsions  :  and  not 
being  supported  by  the  government,  have  sunk  hundreds  at 
a  time.  All  the  banks  of  the  United  States  are  banks  of 
circulation.  They  are  all  subject  to  the  inherent  dangers  of 
that  class  of  banks,  and  are,  besides,  subject  to  new  dangers 
peculiar  to  themselves.     Prom  the  quantity  of  their  stock 


*See  Benton's  thirty  years  in  the  U.  S.  Senate,  vol.  2,  p.  58. 


46  A  RESUME  OF  THE 

held  by  foreigners,  the  quantity  of  other  stocks  in  their 
hands,  and  the  current  foreign  balance  against  the  United 
States,  our  paper  system  has  become  an  appendage  of  that 
of  England.  The  power  of  a  few  banks  over  the  whole  pre- 
sents a  feature  of  danger  in  our  system.  It  consolidates  the 
banks  of  the  whole  Union  into  one  mass,  and  subjects 
them  to  one  fate,  and  that  fate  to  be  decided  by  a  few  with- 
out even  knowledge  of  the  re^t.  An  unknown  divan  of 
bankers  sends  forth  an  edict  which  sweeps  over  the  empire, 
crosses  the  lines  of  the  states  with  the  facility  of  a  firman, 
prostrating  all  state  institutions,  breaking  up  all  engage- 
ments, and  leveling  all  laws  before  it.  This  is  a  kind  of  con- 
solidation which  the  genius  of  Patrick  Henry  had  not  even 
conceived.  But  while  this  firman  is  potent  and  irresistable 
for  prostration,  it  is  impotent  and  powerless  for  resurrection. 
*  *  This  is  our  system,  if  system  it  can  be  called,  which  has 
no  feature  of  consistency,  no  principle  of  safety,  and  which 
is  nothing  but  the  floating  appendage  of  a  foreign  and  over- 
powering system." 

Again  in  1841  in  a  speech  on  the  repeal  of  the  sub-treasury 

act,  Mr.  Benton  said : 

"The  architects  of  mischief,  the  political,  gambling  and 
rotten  parts  of  the  banks,  headed  by  the  Bank  of  the  United 
States,  and  aided  by  a  political  party,  set  to  work  to  make 
panic  and  distress,  to  make  suspensions  and  revulsions,  to 
destroy  trade  and  business,  to  degrade  and  poison  currency, 
to  harrass  the  country  until  it  would  give  them  another  na- 
tional bank,  and  to  charge  all  the  mischief  they  created  upon 
the  Democratic  administration.  This  has  been  their  conduct; 
and  having  succeeded  in  the  last  presidential  election,  they 
now  come  forward  to  seize  the  spoils  of  victory  in  creating 
another  national  bank  to  devour  the  substance  of  the  people, 
and  to  rule  the  government  of  their  country.  Sir :  the  sus- 
pension of  1837  on  the  part  of  the  Bank  of  the  United  States, 
and  its  confederate  banks  and  politicians,  was  a  conspiracy 
and  a  revolt  against  the  government.  The  present  suspen- 
sion is  a  continuation  of  the  same  revolt  by  the  same  parties. 
Sir,  it  is  now  nightfall.  We  are  at  the  end  of  a  long  day 
when  the  sun  is  more  than  fourteen  hours  above  the  horizon, 
and  when  a  suffocating  heat  oppresses  and  overpowers  the 
Senate.  My  friends  have  moved  adjournments.  They  have 
been  refused.  I  have  been  compelled  to  speak  now  or  never; 
and  from  this  commencement,  we  may  see  the  conclusion. 


NATIONAL  BANKING  SYSTEM.  47 

Discussion  is  to  be  stifled.  Measures  are  to  be  driven  through ; 
and  a  mutilated  congress,  hastily  assembled,  imperfectly 
formed,  and  representing-  the  census  of  1830  not  of  1840,  is 
to  manacle  posterity  with  institutions  as  abhorrent  to  the 
constitution  as  they  are  dangerous  to  the  liberties,  the  mor- 
als and  the  property  of  the  people.  A  national  bank  is  to  be 
established,  not  even  a  simple  and  strong  bank  like  that  of 
Gen.  Hamilton,  but  some  monstrous  compound,  born  of  hell 
and  chaos,  more  odious,  dangerous  and  terrible  than  any 
simple  bank  could  be.  But  enough  for  the  present.  The 
question  now  before  us  is  the  death  of  the  sub-treasury.  My 
present  purpose  is  to  vindicate  the  present  treasury  system 
— to  free  it  from  a  false  character,  to  show  it  to  be  what  it 
is,  nothing  but  a  revival  of  two  great  acts  of  Sept.  1st  and 
2d,  1789,  for  the  collection,  safe  keeping  and  disbursement 
of  the  public  moneys  under  which  this  Government  went 
into  operation,  and  under  which  it  operated  safely  and  suc- 
cessfully until  Gen.  Hamilton  overthrew  it  to  substitute  the 
bank  and  state  system  of  Sir  Robert  Walpole  which  has  been 
the  curse  of  England,  and  toward  which  we  are  now  hurry- 
ing again  with  headlong  steps  and  blindfold  eyes."* 

Another  witness  whose  testimony  in  relation  to  the  panic 
of  1837,  seems  worth  recording,  is  Martin  VanBuren,  eighth 
President  of  the  United  States.  In  his  message  to  the  first 
session  of  the  26th  Congress  Mr.  VanBuren  said : 

"The  suspension  at  New  York  in  1837  was  everywhere 
with  very  few  exceptions,  followed  as  soon  as  it  was  known: 
that  recently  at  Philadelphia  immediately  affected  the  banks 
of  the  South  and  West  in  a  similar  manner.  This  depend- 
ence of  our  whole  banking  system  on  the  institutions  in  a 
few  large  cities,  is  not  found  in  the  laws  of  their  organiza- 
tion, but  in  those  of  trade  and  exchange.  The  banks  at  that 
center  to  which  currency  flows,  and  where  it  is  required  in 
payment  for  merchandise,  hold  the  power  of  controlling 
those  in  regions  whence  it  comes,  while  the  latter  possess  no 
means  of  restraining  them  so  that  the  value  of  individual 


*See  Benton's  30  jears  in  U.  S.  Senate,  vol.  2,  p.  228. 

Note. — At  another  tinie,  speaking-  of  the  overthrow  of  the  United  States 
Bank,  Mr.  Benton  prophesied  the  establishing-  of  the  present  banking 
system  in  these  words:  "  We  have  driven  the  tigress  to  the  jiaig/es,  but  I  fear 
that  some  day  she  zvill  return,  bringing  her  whelps  with  her." 


48  A  RESUME  OF  THE 

property  and  the  prosperity  of  trade  through  the  whole  inte- 
rior of  the  country,  are  made  to  depend  on  the  good  or  bad 
management  of  the  banking-  institutions  in  the  great  seats 
of  trade  on  the  sea  board.  But  this  chain  of  dependence 
does  not  stop  here.  It  reaches  across  the  ocean  and  ends  in 
L<ondon,  the  center  of  the  credit  system.  The  same  laws  of 
trade  which  give  to  the  banks  in  our  principal  cities,  power 
over  the  whole  banking  system  of  the  United  States,  subject 
the  former  in  their  turn,  to  the  money  power  of  Great  Brit- 
ain. It  is  not  denied  that  the  suspension  of  the  New  York 
banks  in  1837  was  partly  produced  by  an  application  of  that 
power;  and  it  is  now  alleged  in  extenuation  of  the  present 
condition  of  so  large  a  proportion  of  our  banks,  that  their  em- 
barrassments have  arisen  from  the  same  cause.  From  this 
influence  they  cannot  now  entirely  escape,  for  it  has  its  origin 
in  the  credit  currencies  of  the  two  countries :  it  is  strength- 
ened by  the  current  of  trade  and  exchange  which  centers  in 
London,  and  is  rendered  almost  irresistible  by  the  large 
debts  contracted  there  by  our  merchants,  our  bankers,  and 
our  States.  It  is  thus  that  an  introduction  of  a  new  bank  into 
the  most  distant  of  our  villages,  places  the  business  of  that 
village  within  the  influence  of  the  money  power  of  England. 
It  is  thus  that  every  new  debt  which  we  contract  in  that 
country,  seriously  affects  our  own  currency,  and  extends 
over  the  pursuits  of  our  citizens  its  powerful  influence.  We 
can  not  escape  this  by  making  new  banks,  great  or  small,  state 
or  national.  The  same  chains  which  bind  those  now  existing 
to  the  center  of  this  system  of  paper  credit,  must  equally  fetter 
every  similar  institution  we  create.  It  is  only  by  the  extent 
to  which  this  system  has  been  pushed  of  late,  that  we  have 
been  made  fully  aware  of  its  irresistable  tendency  to  subject 
our  own  banks  and  currency  to  a  vast  controlling  power  in 
a  foreign  land,  and  it  adds  a  new  argument  to  those  which 
illustrate  their  precarious  situation.  Engendered  in  the  first 
place  by  their  own  mismanagement,  and  again  by  the  con- 
duct of  every  institution  which  connects  them  with  the 
center  of  trade  in  our  own  country,  they  are  yet  subjected 
beyond  all  this,  to  the  effect  of  whatever  measures,  policy, 
necessity  or  caprice  may  induce  those  who  control  the 
credits  of  England  to  resort  to." 

In  discussing  the  panic  of  1837,  Von  Hoist  in  his  Constitu- 
tional History,  pages  176  et  seq.,  says: 

"  The  compromise  tariff  of  1833  had  not  yet  come  into  force 


NATIONAL  BANKING  SYSTEM.  49 

when  the  United  States  Bank  began  to  contract  its  giving 
of  credits.  The  withdrawal  of  deposits  served  as  a  pretext 
for  this.  The  most  essential,  if  not  the  only  reason,  was 
evidently  the  hope  of  exerting  a  pressure  on  Congress  in  the 
matter  of  the  renewal  of  the  bank  charter.  The  effect  of 
this  sudden  change  of  its  policies  was  severe  enough.  *  *  * 
At  the  beginning  of  1830  the  aggregate  of  the  State  debts  is 
said  to  have  amounted  to  $13,000,000,  and  in  May  1836,  Web- 
ster estimated  the  European  capital  invested  in  the  securities 
of  the  States  of  the  Union  at  $50,000,000.  Two  years  later 
he  thought  that  not  less  than  $100,000,000  of  European  money 
had  been  loaned  in  the  United  States  to  States,  corporations 
and  individuals  to  be  used  in  internal  improvements.  Bank 
notes  had  been  issued  in  enormous  quantities..  Speculation 
in  Spanish  and  Portugese  goods  had  made  great  demands  in 
1834  on  the  resources  of  the  Bank  of  England.  It  had  not 
yet  regained  its  normal  condition  when  speculation  in  the 
United  States  began  in  earnest.  Up  to  the  summer  of  1836 
bills  of  exchange  to  the  amount  of  ^2,600,000  had  been 
drawn  on  the  bank.  Its  reserve  of  gold  was  greatly  reduced, 
and  on  the  ist  of  July  it  began  to  contract  its  credits.  A  rapid 
fall  of  prices  followed,  and  great  anxiety  prevailed  in  all 
business.  In  November  some  English  banks  were  greatly 
embarrassed,  and  the  Bank  of  England  came  to  their  assist- 
ance only  on  condition  that  they  would  go  into  liquidation. 
This  blow  caused  the  ruin  of  three  large  houses  which  did 
business  with  the  United  States.  This  s'  one  was  set  rolling-, 
and  it  had  scarcely  begun  to  move  when  its  rolling  changed 
into  a  precipitous  headlong  fall.  Bankruptcies  came  in  ava- 
lanches. One  manufactory  after  another  stopped,  and  the 
number  of  those  who  could  find  neither  bread  nor  work  in- 
creased by  thousands  and  tens  of  thousands." 


CHAPTER   VIII. 

The  Panic  of  1857. 

The  panic  of  1857  was  one  of  the  most  disastrous  which 
this  country  has  ever  experienced. 

In  1858,  the  year  following  the  inception  of  this  panic, 
J.  S.  Gibbons  published  a  book  entitled  "The  Banks  of 
New  York."     In    Chapter   XIX   of  this  work,   the  author 


50  A  RESUME  OF  THE 

gives  a  clear  and  graphic  description  of  this  panic,  and  of 

its   cause.     The   following-   extracts   are   taken    from   this 

work : 

"Up  to  August,  1857,  our  commercial  affairs  were  gener- 
ally prosperous.  The  local  journals  throughout  the  coun- 
try represented  business  as  in  a  wholesome  condition. 
High  prices  were  said  to  have  enriched  the  farmer,  the 
stock  grower  and  the  planter.  Trade  and  mechanical  in- 
dustry flourished  with  corresponding  success.  *  *  *  The 
banks  beijan  to  contract  their  loans  about  the  8th  of  Au- 
gust. Securities  immediately  fell  in  price  at  the  stock 
board.  The  failure  of  a  heavy  produce  house  was  ex- 
plained by  a  depression  of  that  particular  interest  in  the 
market.  A  report  of  dishonest  jobbing  and  the  misuse  of 
funds  in  a  leading  railway  company  caused  partial  excite- 
ment without  seriously  disturbing  confidence  in  mercantile 
credit.  On  the  24th  of  August  the  suspension  of  the  Ohio 
L,ife  and  Trust  Company  was  announced.  It  struck  on  the 
public  mind  like  a  cannon  shot.  An  intense  excitement 
was  manifested  in  all  financial  circles.  The  holders  of 
stock  and  commercial  paper  hurried  to  the  broker  and  were 
eager  to  make  what  a  week  before  they  would  have 
shunned  as  a  ruinous  sacrifice.  The  most  substantial  se- 
curities of  the  market  fell  rapidly  in  price  at  publx  sale. 
The  regular  discount  of  bills  by  the  banks  had  mostly  been 
suspended,  and  the  street  rates  for  money  even  on  unques- 
tionable securities  rose  to  three,  four,  and  five  per  cent,  a 
month.  On  the  ordinary  securities  of  merchants,  such  as 
promissory  notes  and  bills  of  exchange,  money  was  not  to 
be  had  at  any  rate.  House  after  house  of  high  commercial 
standing  succumbed  to  the  panic,  and  several  heavy  bank- 
ing firms  were  added  to  the  list  of  failures.  The  settle- 
ment of  the  New  York  City  banks  for  the  week  ending 
Sept.  5th  showed  a  further  reduction  in  the  loans  of  more 
than  $4,000,000.  From  this  period  there  was  nothing  want- 
ing to  aggravate  the  common  distress  for  money.  Com- 
mercial business  was  everywhere  suspended.  The  ava- 
lanche of  discredit  swept  down  merchants,  bankers,  mon- 
eyed corporations  and  manufacturing  companies  without 
distinction.  Old  houses  of  accumulated  capital  which  had 
withstood  the  violence  of  all  former  panics,  were  prostrat- 
ed in  a  day  ;  and  when  they  believed  themselves  to  be  per- 
fectly safe  against  misfortune.     Such  is  the  outline  of  the 


NATIONAL  BANKING  SYSTEM. 


51 


most  extraordinary,  violent  and  destructive  financial  panic 
ever  experienced  in  this  country.  What  caused  it  ?  To 
what  source  or  sources  can  it  be  traced?  Where  lies  the 
responsibility  for  it?  What  lessons  does  it  teach?  What 
preventatives  are  indicated  against  the  recurrence  of  sim- 
ilar disaster  ?  These  are  questions  which  ag-itate  the  pub- 
lic mind  and  which  oug-ht  to  be  answered,  if  possible,  for 
our  instruction  and  future  guidance." 

In  discussing-  the  cause  of  this  panic,  the  same  author 

proceeds  as  follows: 

"It  is  remarkable  that  there  was  no  interval  of  pressure 
between  the  plentiful  money  market  which  lasted  until  the 
22d  day  of  August,  and  the  panic  with  which  the  month 
closed.  There  was  no  treaty  between  commerce  and  money 
as  to  the  common  interest.  The  panic  was  an  explosion 
without  notice  or  premonition.  It  was  not  as  in  former 
cases,  the  result  of  gradually  increasing-  embarrassment 
after  vain  strug-g-les  to  prevent  it.  This  is  demonstrated  by 
the  following-  figures : 

Weekly  Fluctuation  of  Loans,  Deposits,  Circulation 
and  Specie  from  Aug.  22  to  Sept.  26,  1857. 


August  29 
Sept'r  5 
Sept'r  12 
Sept'r  19 
Sept'r    26 


Loans. 


dec. 
dec. 
dec. 
dec. 
dec. 


$3,550,663 

4,367,554 

2,235,792 

1,208,152 

989,988 


dec.  $12,348,149 


Dbposits. 


dec.  S3,380,670 
dec.  3,600,190 
inc.  73,512 
inc.  51.7,844 
dec.       933,102 


dec.  $7,322,608 


Circulation, 


dec. 
inc. 
dec. 
dec. 
dec. 


$22,951 
2,132 
350,876 
248,515 
235,493 


dec.    $855,703 


Specie. 


dec. 
inc. 
inc. 
inc. 
dec. 


$855,802 

986,588 

1,953,893 

1.374,329 

229,091 


inc.  $3,229,917 


"The  loans  were  reduced  during  this  term  $12,348,149. 
The  increase  of  specie  reserved  from  the  liquidation  makes 
the  true  relative  decrease  $15,578,066.  The  most  violent  ac- 
tion was  between  Sept.  5th  and  Sept.  19th,  when  the  loans 
were  reduced  $3,443,944,  in  the  face  of  an  increase  of  deposits 
of  nearly  six  hundred  thousand  dollars.  The  true  relative 
change  in  the  latter  period  is  represented  by  a  reduction  of 
$6,172,772  in  the  loans,  while  the  deposits  actually  increased 


52  A  RESUME  OF  THE 

$591,356.  There  ean  be  no  escape  from  these  figures.  They 
show  beyond  cavil  that  the  banks,  not  the  depositors,  took  the 
lead  in  forcing  liquidation.  "When  dealers  are  denied  the 
usual  facilities  by  discount,  they  have  no  recourse  for  their 
payments  but  to  their  deposits,  but  they  did  not  use  these 
to  the  full  extent  of  their  loan  reduction  in  any  single  week 
from  the  22d  of  August  to  the  19th  of  September.  *  *  * 
The  history  of  the  panic  is  clearly  divisible  into  these  two 
periods  ;  the  former  when  the  banks  took  the  initiative  in 
forcing  down  their  loans,  and  the  latter  in  which  the  de- 
positors seized  it  and  brought  on  the  closing  acts  of  sus- 
pension. *  *  The  gradual  expansion  of  bank  credits 
through  the  several  previous  years  not  only  on  a  fictitious 
home  basis,  but  on  country  deposits  which  had  been  al- 
lured by  competing  rates  of  interest  made  sufficient  ground 
for  an  extraordinary  pressure  when  a  reduction  was  to  be 
effected ;  and  thus  the  banks  were  doubly  responsible  for 
the  pending  issue.  There  is  no  evidence  in  the  records  of 
the  clearing  house,  nor  in  the  experience  of  past  years,  nor 
in  any  events  which  have  transpired  since  the  suspension, 
to  prove  that  the  panic  was  inevitable.  The  foregoing 
facts  indicate  that  it  was  directly  caused  by  the  violent 
contraction  of  bank  loans." 

The  following  extract  is  taken  from  an  article  written  by 
Edward  Kellogg,  which  appeared  in  the  New  York  Daily 
Tribune  on  Nov.  27,  1857  :* 

"Sir:  A  few  months  ago  this  country  was  enjoying  a 
prosperity  unsurpassed  in  its  history.  The  crops  more 
abundant  than  ever  before,  were  sufficient  to  supply  not 
only  our  own  wants,  but  to  admit  of  large  exportations. 
Manufacturing  establishments  and  railroads  employed  a 
large  number  of  persons.  The  merchants  were  conducting 
their  business  with  as  much  prudence  as  at  any  former  pe- 
riod. Houses  were  being  built  in  the  cities  and  villages, 
and  in  the  farming  districts,  and  labor  was  in  good  de- 
mand. 

"Now,  affairs  are  in  a  very  different  condition.  The  busi- 
ness of  the  merchants  is  broken  up ;  the  manufacturers 
have  suspended  their  operations ;  hundreds  of  thousands  of 
laborers  are  thrown  out  of  employment  and  are  in  danger 


See  Kellog-g's  work  on  "Labor  and  Capital,"  page  338. 


NATIONAL  BANKING  SYSTEM.  S3 

of  starvation  ;  the  farmers  cannot  get  their  abundant  crops 
to  market,  and  if  they  could,  they  would  be  obliged  to  sell 
them  at  greatly  reduced  prices.     Business  stands  still. 

"This  great  change  is  rightly  said  to  be  owing  to  the  diffi- 
culties in  finances,  to  the  crisis  in  the  money  market.  All 
the  money  of  the  nation,  bank  notes  included,  amounts  to 
about  five  hundred  millions  of  dollars.  Probably  when  the 
circulation  of  the  banks  has  been  the  most  expanded  the 
whole  currency  has  never  reached  six  hundred  millions. 
But  the  productions  of  labor  for  the  last  year  are  estimated 
at  three  billions,  five  hundred  millions  of  dollars— about 
seven  times  as  much  as  all  the  currency  of  the  nation,  and 
these  productions,  or  a  large  portion  of  them,  will  change 
hands  through  the  process  of  manufacture  and  otherwise, 
from  three  to  eight  or  ten  times  before  they  reach  the  ac- 
tual consumers.  Now,  this  comparatively  small  sum  of 
money  must  pay  for  every  one  of  these  exchanges,  or  for 
every  debt  contracted  in  making  these  exchanges.  The 
same  money  must  also  pay  all  the  debts  contracted  by  bor- 
rowing money  from  banks,  or  upon  bond  and  mortgage  or 
otherwise.  It  must  pay  for  all  the  lands  that  are  sold  by 
the  Government  and  by  individuals ;  for  all  the  bonds  is- 
sued by  railroads,  cities,  states  and  the  United  States  ;  for 
all  the  stocks  and  securities  that  are  sold  at  private  sale,  at 
auction  and  by  the  various  boards  of  brokers  and  for  all 
the  bills  of  exchange  sold  from  one  part  of  the  country  to 
another,  as  well  as  for  all  bills  of  exchange  upon  foreign 
nations.  It  is  evident  that  this  comparatively  small  sum 
of  money  must  change  hands  a  great  number  of  times  to 
effect  the  needful  exchanges  of  this  immense  amount  of 
property,  and  that  any  obstruction  to  its  movement,  or 
withdrawal  of  a  portion  of  it  from  circulation  must  serious- 
ly embarrass  the  business  of  the  whole  country.  The  im- 
portance of  this  free  circulation  may  perhaps  be  more  fully 
appreciated  when  we  state  that  all  the  money  we  possess — 
gold,  silver  and  paper— would  not  suffice  to  pay  the  board 
of  this  nation  for  four  months  at  $1  per  week  for  each  indi- 
vidual. The  City  of  New  York  is  the  financial  center  of 
the  country.  If  the  banks  in  this  city  keep  up  their  lines 
of  discount  so  as  to  supply  the  business  community  with 
money,  the  banks  in  all  other  parts  of  the  country  will  also 
discount  and  supply  the  people  in  their  neighborhoods.  Of 
course  there  must  be  at  times  balances  greater  or  less 
against  one  part  of  the  country  in  favor  of  another,  but  all 


54  A  RESUME  OF  THE 

♦ 

these  will  be  easily  adjusted,  and  business  will  go  on  pros- 
perously. 

"In  the  latter  part  of  August  last  the  Ohio  L,ife  and 
Trust  Company,  with  a  capital  of  two  million  dollars,  sus- 
pended payment,  with  debts  against  the  company  to  the 
amount  of  six  or  seven  millions  of  dollars.  This  failure 
was  the  apparent  occasion  of  distrust,  and  of  contraction 
in  bank  issues  to  the  amount  of  some  eight  millions  of  dol- 
lars in  the  course  of  two  weeks ;  and  to  the  24th  of  October 
of  about  twenty-six  million  dollars.  This  contraction  of 
discounts  for  the  first  two  weeks  only  was  doubtless  a  much 
greater  loss  to  the  business  men  of  this  city  than  the  en- 
tire capital  and  liabilities  of  the  Ohio  Iyife  and  Trust  Com- 
pany. 

"The  news  of  this  curtailment  rushed  with  lightning 
speed  to  all  parts  of  the  country,  and  carried  consternation 
into  every  city  and  town  where  a  bank  existed  ;  and  the 
banks  in  this  city  and  throughout  the  country  called  upon 
each  other  to  pay  up  their  balances  in  specie.  Many  of  the 
banks  in  this  State  were  obliged  not  only  to  stop  discount- 
ing, but  had  to  send  their  State  stocks  to  this  city  and  sell 
them  at  from  15  to  30  per  cent,  loss  to  redeem  their  bank 
notes  and  take  them  out  of  circulation  in  order  to  save 
themselves  from  suspension.  But  this  was  not  the  worst 
of  the  evil.  Merchants  unable  to  get  their  notes  discount- 
ed at  bank,  were  driven  into  Wall  Street,  and  compelled  to 
borrow  at  exorbitant  rates  of  interest  to  meet  their  pay- 
ments, thus  rapidly  increasing  their  indebtedness  and  ren- 
dering it  inevitable  that  in  the  end  a  large  proportion  of 
them  should  be  made  bankrupt.  Many  of  them  paid  to 
usurers  for  the  use  of  money  one,  two,  three,  four,  five  and 
six  per  cent,  a  month,  and  from  these  rates  to  a  quarter,  a 
half,  and  sometimes  one  per  cent,  or  more  a  day,  and  were 
compelled  to  leave  double,  treble  and  quadruple  securities 
to  obtain  the  money  at  all.  The  banks,  by  curtailing  their 
discounts  so  that  money  is  not  to  be  had  to  meet  the  mer- 
cantile engagements,  remove  the  foundation  upon  which 
the  contracts  were  based  ;  and  the  merchants  can  no  more 
stand  up  under  such  an  event  than  a  house  can  stand  sup- 
ported by  the  air,  if  the  foundation  be  removed  from  under 
it.  Money  is  the  only  thing  recognized  by  our  laws  as  a 
tender,  and  all  the  property  of  debtors  becomes  mere  collat- 
eral security  for  the  payment  of  money  for  their  obliga- 


NATIONAL  BANKING  SYSTEM.  55 

tions.     Hence,  in  a  crisis  like  this,  the  wealth  of  the  nation 
seems  to  be  concentrated  in  the  money.     *     *     * 

"When  the  Ohio  L^ife  and  Trust  Company  suspended  pay- 
ment, had  the  banks  in  the  City  of  New  York  discounted 
every  note  offered  that  was  considered  safe,  in  less  than 
three  weeks,  and  probably  in  one  week,  money  would  have 
been  as  plenty  in  the  City  of  New  York  and  throughout  the 
country  as  it  has  been  at  any  time  during-  the  past  ten 
years  ;  and  all  undoubted  securities  that  were  bearing  seven 
per  cent,  interest  would  have  commanded  money  at  their 
par  value.  The  business  of  the  whole  nation  would  doubt- 
less have  been  as  prosperous  as  it  has  been  at  any  time  dur- 
ing the  last  ten  years.  The  agricultural  productions  of  the 
South  and  West  would  have  been  rapidly  sent  to  market, 
and  would  have  sold  at  prices  that  would  have  remunerated 
the  producer.  Now,  if  they  are  freely  sent  into  the  market, 
they  will  be  sold  at  ruinous  sacrifices.     *     *     * 

"In  the  present  crisis  the  same  means  must  be  used  to  re- 
lieve us  from  our  financial  difficulties  that  ought  to  have 
been  used  to  prevent  their  occurrence.  L,et  the  banks  in  the 
City  of  New  York  discount  every  piece  of  paper  offered 
which  they  consider  safe  and  good.  I^et  them  discount  pa- 
per that  has  four,  five  or  six  months  to  run,  as  well  as  short 
paper.  They  can  do  this  as  well  now  as  they  ever  could  at 
any  previous  time.  Let  them  discount  thus  liberally  and 
the  business  of  the  nation  will  revive.  *  *  *  Whether 
business  shall  revive  now,  our  manufacturers  resume  their 
operations,  our  laborers  be  employed ;  or  whether  the  pres- 
ent condition  of  the  money  market  shall  continue  until  the 
country  is  completely  prostrate,  and  the  wealth  of  the  na- 
tion for  the  greater  part  accumulated  in  the  hands  of  the 
usurers,  is  at  the  option  of  the  banks  in  the  City  of  New 
York." 


56  A  RESUME  OF  THE 

CHAPTER   IX. 

The  Panic  of  1873. 

The  next  severe  panic  and  the  first  after  the  inauguration 
of  the  present  system  of  bank  issues,  was  that  of  1873. 
While  this  panic  was  the  result  undoubtedly  of  a  contrac- 
tion of  the  currency,  it  was  not  wholly,  and  perhaps  not 
mainly,  due  to  a  contraction  of  bank  issues,  although  such 
contraction  did  occur  and  did  materially  hasten  and  pro- 
mote the  crash. 

There  can  be  no  doubt  that  the  withdrawal  from  circula- 
tion and  destruction  of  the  various  issues  of  Treasury 
notes,  which  had  been  steadily  going-  on  for  j'ears,  in  pur- 
suance of  the  contraction  act  of  1866,  was  one  of  the  primal 
and  chief  causes  of  this  panic.  Neither  can  there  be  any 
doubt  that  the  demonitization  of  silver  in  1873  assisted 
materially  in  producing  the  distress  which  followed.  Both 
these  acts  were  passed  by  Congress  at  the  dictation  of  the 
money  power  for  the  purpose  of  removing  as  far  as  possible 
Government  issues  either  of  coin  or  paper  from  circulation 
in  order  that  their  place  might  be  supplied  by  bank  issues. 

The  culminating  acts,  however,  which  precipitated  the 
panic,  were  those  of  the  banks  in  suddenly  contracting 
their  loans.  In  support  of  this  statement,  the  following  is 
quoted  from  Bolle's  "  Financial  History,"  page  363: 

"Opposition  to  the  banks  was  now  at  its  height.  Many 
things  had  happened  to  inflame  the  feeling  against  them. 
The  year  before  (1873)  a  financial  storm  had  swept  over  the 
country,  and  the  suffering  therefrom  was  keen  and  univer- 
sal. The  event  was  largely  attributed  to  the  intimate  rela- 
tions *existing  between  the  banks  of  New  York  City  and  the 
members  of  the  Stock  Exchange,  whereby  the  currency  was 
suddenly  contracted,  or  "locked  up"  in  the  language  of  the 
day,  and  brokers  were  preferred  to  merchants  by  the  banks 
as  borrowers  of  money.  One  of  these  "lock-ups"  had  been 
a  matter  of  Congressional  investigation  in  1872.     A  direc- 


NATIONAL  BANKING  SYSTEM.  57 

tor  of  the  Tenth  National  Bank  of  New  York  was  a  special 
partner  in  three  firms  with  whom  he  left  his  money  to  be 
loaned.  On  a  day  specified,  he  directed  them  to  call  in  his 
money,  which  they  did.  In  the  afternoon  he  went  to  his 
bank  with  the  checks  received  from  the  three  firms,  amount- 
ing- to  $4,100,000.  He  requested  the  president  to  put  them 
through  the  clearing  house  the  next  morning.  This  was 
done.  The  money  was  paid;  but  instead  of  putting  it  into 
the  bank  on  deposit,  he  carried  it  away.  The  whole  trans- 
action was  simply  an  arrangement  by  which  it  withdrew 
over  $4,000,000  of  legal  tender  notes  from  circulation  for  a 
director  of  the  concern,  whose  avowed  object  in  having  it 
done,  as  he  himself  testified  before  the  investigating  com- 
mittee, 'was  to  cause  a  stringency  in  the  money  market  for 
the  purpose  of  bringing  about  a  decline  in  the  price  of 
stocks'  of  which  he  was  'short.'  It  affected  not  only  the 
banks  and  the  business  community  of  the  City  of  New 
York,  but  that  city  being  the  principal  center  of  the  mone- 
tary operations  of  the  whole  country,  the  stringency  pro- 
duced there  in  the  money  market  extended  to  other  cities, 
and  affected  more  or  less  injuriously  every  branch  of  busi- 
ness requiring  the  use  of  money  throughout  the  coun- 
try. These  operations  were  repeated  more  than  once,  and 
were  strongly  condemned  in  every  quarter  outside  of  Wall 
Street."* 

Another  financial  crisis  occurred  in  1884.  Comptroller 
Cannon,  although  lauding  the  banking  system,  as  must  be 
expected  of  one  occupying  his  position,  is  compelled,  never- 
theless, to  make  the  following  admissions  in  regard  to  the 
causes  of  the  panics  of  1873  and  1884  :f 

"The  crisis  of  1884  seems  to  have  been  even  more  unex- 
pected to  the  country  than  that  of  September,  1873.  Al- 
though many  conservative  people  had  predicted  that  the 
large  increase  in  railroad  and  other  securities  and  the  gen- 
eral inflation  which  had  been  going  on  for  a  number  of 
years  would  bring  financial  troubles  and  disasters  to  the 
country,  it  was  nevertheless  generally  believed  that  the  de- 
preciation of  values  and  the  liquidation  which  had  already 


*  See  House  Report  No.  5,  42J   Congress,  3d  session.     See  also  the  ex- 
tract from  Comptroller's  Report,  Chapter  V. 
t  See  Comptroller's  Report  for  1884,  page  34. 


58  A  RESUME  OF  THE 

been  going  on  for  many  months,  and  the  further  fact  that 
the  country  was  doing  business  on  a  gold  basis,  that  the 
prices  of  all  commodities  were  already  very  low,  that  an 
increased  area  of  territory  was  under  cultivation,  and  that 
the  prospects  were  excellent  for  good  crops,  together  with 
the  larger  distribution  of  wealth  throughout  the  Union, 
would  prevent  a  repetition  of  the  panic  of  1873.  *  *  * 
The  most  profound  students  of  political  economy  have  for 
many  years  endeavored  to  explain  the  causes  which  have 
led  to  financial  troubles  similar  to  those  of  1857,  1873  and 
1884,  and  it  is  not  to  be  expected  that  the  Comptroller  can 
obtain  sufficient  data  to  enter  into  a  complete  and  satisfac- 
tory explanation  of  the  causes  of  the  financial  disturbances 
of  the  present  year.  It  is  apparent,  however,  that  a  repeti- 
tion of  some  of  the  same  circumstances  which  brought 
about  the  monetary  crisis  of  1873  has  been  largely  influen- 
tial in  causing  the  present  crisis.  Property  of  all  kinds 
had  been  capitalized,  as  it  is  called,  bonds  and  stocks  had 
been  issued  for  the  purpose  of  building  railroads,  carrying 
on  manufacturing  and  other  business.  Municipal  and  oth- 
er bonds  had  been  issued  for  public  improvements.  These 
bonds  and  stocks  were  put  upon  the  market,  and  commer- 
cial credit  was  extended,  until  a  poi?it  was  reached  where 
capitalists  of  this  and  other  countries  questioned  the  intrinsic 
value  of  these  securities,  and  the  earning  power  of  the  prop- 
erties on  which  they  were  based,  and  also  doubted  the  solvency 
of  many  firms  in  commercial  business.  This  lack  of  confi- 
dence induced  them  to  decline  to  make  further  advances  or 
investments.  A  decrease  in  the  earnings  of  railroads,  manu- 
facturing and  other  enterprises  followed,  and  the  entire  busi- 
ness of  the  country  has  consequently  been  restricted  and  dead- 
ened." 

The  above  statements  of  Comptroller  Cannon  are  worthy 
of  careful  study.  Coming  from  such  a  source,  they  con- 
tain a  remarkably  full  and  complete  admission  of  the 
charge  that  banks  of  issue  were  largely  instrumental  in 
producing  the  panics  of  1873  and  1884. 

"It  is  apparent,"  he  says,  "that  a  repetition  of  some  of 
the  same  circumstances  which  brought  about  the  panic  of 
1873  has  been  largely  influential  in  causing  the  present 
panic."     *    *    *     "Bonds  had  been  issued  for  the  purpose 


NATIONAL  BANKING  SYSTEM.  59 

of" — borrowing-  money  to  be  used  in — "building  railroads, 
carrying-  on  manufacturing-  and  other  business."  "Com- 
mercial credit" — in  other  words,  bank  credits — "had  been 
extended  until  a  point  was  reached  where  capitalists  of  this 
and  other  countries" — composed  of  bankers  and  their  sa- 
tellites— "questioned  the  intrinsic  value  of  these  securities 
and  the  earning-  power  of  the  properties  on  which  they 
were  based,  and  also  doubted  the  solvency  of  many  firms 
in  commercial  business."  "This  lack  of  confidence'''' — on  the 
part  of  the  capitalists — "induced  them  to  decline  to  make 
further  advances" — i.  e.  loans — "or  investments" — in  other 
words,  to  lock  up  their  money  and  take  it  entirely  out  of 
circulation.  "A  decrease  in  the  earnings  of  railroads,  manu- 
facturing and  other  enterprises  followed,  and  the  efitire  busi- 
ness of  the  country  has  consequently  been  restricted  and 
deadened.'''' 


CHAPTER  X. 

The  Panic  of  1893. 


In  his  report  for  1893,  Comptroller  Eckels  labors  to  show 
that  the  panic  of  1893  was  precipitated  by  the  action  of  de- 
positors in  national  banks  in  withdrawing-  their  deposits. 

A  careful  analysis  of  certain  tables  given  in  this  report, 
however,  proves  most  conclusively  that  Mr.  Eckels'  position 
is  untenable. 

An  examination  of  tables  found  on  pages  280  et  seq.  of  the 
report  (which  show  the  condition  of  all  national  banks  at 
the  times  of  their  periodical  reports  in  each  year  for  several 
years  prior  to,  and  including,  1893)  reveals  the  fact  that  the 
aggregate  amount  of  the  deposits  in  national  banks  is  con- 
stantly changing,  rising  and  falling,  and  that  these  fluctu- 
ations are  exceedingly  irregular.  Variations  in  the  volume 
of  deposits  from  one  report  to  the  next  succeeding  report  of 
five,  ten,  twenty  or  even  forty  millions  of  dollars,  are  seen 


60  A  RESUME  OF  THE 

to  have  been  by  no  means  uncommon.  For  instance  between 
the  4th  day  of  May  and  the  9th  day  of  July,  1891,  there  was 
a  decrease  in  the  amount  of  deposits  in  the  national  banks 
of  more  than  $40,000,000.  This  large  decrease,  however,  ex- 
cited no  comment  and  occasioned  no  alarm.  These  deposits 
were  withdrawn  from  the  banks  for  use  in  business,  and 
instead  of  contracting-  the  currency,  tended  to  make  its  cir- 
culation more  active.  The  effect  of  such  withdrawals  is  quite 
different  from  that  produced  by  the  withdrawal  on  the  part 
of  the  banks  of  their  loans.  Banks  use  money  in  no  other 
way  than  to  loan  it ;  and  when  they  refuse  to  make  such 
loans,  the  money  remains  locked  in  their  vaults,  and  is  un- 
able to  perform  any  of  its  functions.  Now  let  us  examine 
the  facts  disclosed  by  the  Comptroller's  report  which  show 
the  connection  of  the  banks  with  the  panic  of  1893.  A  table 
given  on  page  4  of  the  report  shows  that  the  aggregate 
amount  of  individual  deposits  in  all  national  banks  on  the 
6th  day  of  March,  1893,  was $1,751,439,371.14;  and  that  on  the 
4th  of  May  following,  such  deposits  amounted  to  $1,749,930,- 
817.51,  showing  a  decrease  in  deposits  of  about  1%  million 
dollars,  a  very  slight  decrease,  and  one  which  in  view  of  the 
facts  above  stated,  could  have  occasioned  no  alarm  or  even 
comment  in  financial  circles.  It  is  evident,  therefore,  that 
up  to  the  4th  day  of  May,  1893,  depositors  generally  through- 
out the  country,  were  pursuing  the  "even  tenor  of  their 
waj'-,"  and  that  so  far  as  they  were  concerned,  no  such  thing 
as  a  panic  had  been  thought  of. 

But  let  us  see  what  the  banks  in  the  money  centers  of 
New  York  and  Chicago  were  doing  during  this  same  period. 

A  table  given  on  page  282  of  the  report  shows  that  the 
individual  deposits  in  the  national  banks  of  the  City  of  New 
York  on  March  6,  1893,  amounted  to  $284,898,089.33,  and  that 
on  the  4th  day  of  May,  1893,  such  deposits  amounted  to  $286,- 
985,310.15,  an  increase  in  deposits  during  the  two  months  of 
$2,087,220.82. 


NATIONAL  BANKING  SYSTEM.  61 

The  same  table  shows  that  the  loans  and  discounts  of 
these  same  banks  on  March  6,  1893,  amounted  to  $323,445,- 
104.33  (which  is  almost  exactly  the  same  amount  as  that  of 
their  loans  outstanding  at  the  time  of  the  previous  report 
on  December  9,  1892)  and  that  on  the  4th  day  of  May,  1893, 
their  loans  and  discounts  amounted  to  only  $307,372,242.62, 
showing-  a  decrease  in  loans  of  $16,072,861.71. 

A  similar  table  given  on  paf  e  304  shows  that  the  individual 
deposits  in  the  national  banks  of  the  City  of  Chicago  on  the 
6th  day  of  March,  1893,  amounted  to  $69,552,834.78,  and  that 
on  May  4th,  1893,  such  deposits  amounted  to  $75,781,073.65, 
an  increase  in  deposits  of  $6,228,238.87.  In  spite  of  this  large 
increase  in  their  deposits  however,  their  loans  and  discounts 
were  reduced  from  $100,414,204.64  on  March  6th,  1893,  to 
$96,824,856.96  on  May  4th,  1893,  a  decrease  of  $3,589,347.68. 

The  above  figures  show  beyond  the  possibility  of  doubt 
that  the  national  banks  of  New  York  and  Chicago  precipi- 
tated the  panic  of  1893. 

By  the  increase  in  their  deposits  of  over  eight  million  dol- 
lars, and  the  contraction  of  their  loans  to  the  amount  of 
nearly  twenty  million  dollars,  they  took  out  of  circulation 
between  the  6th  day  of  March  and  the  4th  day  of  May,  1893, 
nearly  thirty  million  dollars ! 

When  we  remember  that  New  York  and  Chicago  are  the 
money  centers  of  the  country,  and  that  a  money  stringency 
created  in  these  centers  must  of  necessity  extend  through- 
out the  country,  we  can  readily  see  that  a  general  panic  must 
inevitably  have  followed  this  action  of  the  New  York  and 
Chicago  banks.  It  is  true  that  after  the  panic  was  thus 
started,  the  people  became  frightened  and  following  the 
example  of  the  banks,  withdrew  and  hoarded  their  deposits, 
thereby  adding  fuel  to  the  flames  which  the  bankers  had 
kindled.  The  result  has  been  that  some  of  the  weaker  banks 
have  themselves  gone  down  in  the  general  shipwreck. 

But  what  motive,  the  reader  asks,  could  the  banks  have 


62  A  RESUME  OF  THE 

had  for  such  action  ?  In  the  first  place,  a  motive  always 
exists  in  the  fact  that  times  of  panic  furnish  to  capitalists 
their  most  abundant  harvests.  In  times  of  panic  prices  of 
all  kinds  of  property  are  forced  down  to  the  lowest  point. 
The  capitalist  is  then  enabled  to  invest  his  money  in  proper- 
ties which  cost  him  but  a  fraction  of  their  real  value.  These 
properties  he  holds  until  "confidence"  has  been  "  restored," 
and  prices  have  again  reached  a  normal  level,  when  they 
are  unloaded  upon  an  unsuspecting-  public.  "These  opera- 
tions" said  Benton,  "may  be  repeated  in  every  cycle  of  so 
many  years,  at  every  periodical  turn  of  the  wheel  transfer- 
ring- millions  from  the  actual  possessors  of  property  to  the 
Neptunes  who  preside  over  the  flux  and  reflux  of  paper." 

But  the  banks  had  a  still  deeper  purpose  in  view  in  pre- 
cipitating the  panic  of  1893. 

The  Sherman  law  then  in  force  provided  for  the  purchase 
by  the  Government  of  4,500,000  ounces  of  silver  bullion  per 
month  at  the  market  price,  and  the  payment  therefor  in 
treasury  notes  issued  for  this  purpose.  This  law,  therefore, 
was  adding  to  the  circulating  medium  of  the  country  a  cer- 
tain amount  of  currency  each  month,  and  this  currency  was 
being  paid  directly  into  circulation  by  the  Government  with- 
out reference  to  banks. 

Under  the  operation  of  this  law  about  $150,000,000  of  such 
Treasury  notes  had  been  issued  and  were  circulating  in  the 
channels  of  trade.  From  this  circulation  however  the  banks 
derived  no  profit.  But  if  they  could  secure  the  repeal  of  this 
law,  the  banks  would  be  in  position  to  supply  the  place  of 
the  currency  cut  off  by  such  repeal,  with  bank  notes,  provid- 
ed they  could  also  secure  the  issue  by  the  Government  of  bonds 
sufficient  for  the  basis  of  such  an  increase  of  bank  paper. 

The  holders  of  our  bonds  in  Europe,  as  well  as  in  America, 
were  also  interested  in  the  repeal  of  this  law.  For  the  law 
provided  that  the  Secretary  of  the  Treasury  should  coin  so 
much  of  the  bullion  so  purchased  into  standard  silver  dol- 


NATIONAL  BANKING  SYSTEM.  63 

lars,  as  might  be  necessary  to  provide  for  the  redemption  of 
the  Treasury  notes  issued  in  purchase  of  the  bullion.  This 
was  the  only  existing-  statute  which  in  any  way  provided 
for  the  further  coinage  of  silver.  The  money  power  of  Eu- 
rope and  America  had  consented  to  the  enactment  of  this 
law,  as  appears  from  the  statements  of  John  Sherman,  only 
to  prevent  the  passage  of  an  act  providing  for  the  free  coin- 
age of  silver  as  it  existed  prior  to  the  demonetization  act  of 
1873. 

If  this  law  were  repealed,  therefore,  the  increased  demand 
for  gold  coin  with  which  to  supply  the  place  before  occupied 
by  silver,  would  necessarily  largely  enhance  ils  value. 
Thus  the  bonds  of  the  United  States  payable  in  coin,  in  the 
hands  of  the  bondholders,  would  be  increased  in  value. 

The  banking  and  moneyed  interests  of  the  world  com- 
bined, therefore,  to  secure  the  repeal  of  the  purchasing 
clause — the  vital  portion — of  this  law. 

In  order  to  obtain  the  desired  legislation  a  plan  of  action 
was  adopted  and  put  into  execution. 

A  money  stringency  was  created  in  the  money  centers  of 
the  country  as  above  described.  At  the  same  time  an  on- 
slaught was  made  upon  the  gold  in  the  Treasury.  Treasury 
notes  issued  in  payment  for  silver  bullion  were  presented  at 
the  Treasury  and  it  was  demanded  that  they  be  redeemed  in 
gold.  Under  the  provisions  of  the  Sherman  law,  they  were 
redeemable  in  either  gold  or  silver,  at  the  discretion  of  the 
Secretary  of  the  Treasury.  But  in  this  instance,  as  always, 
the  Secretary's  discretion  was  exercised  in  favor  of  the  capi- 
talists and  against  the  people.  The  excuse  offered  for  re- 
deeming these  notes  only  in  gold  was  that  it  was  absolutely 
necessary  to  do  so  in  order  to  maintain  parity  between  the 
two  metals.  As  if  parity  between  the  two  would  be  promot- 
ed by  dishonoring  the  one  ! 

The  gold  thus  drawn  from  the  Treasury  by  Ickelheimer, 
Heidelbach  &  Co.,  hazard,  Freres  &  Co.,  and  others,  in  pur- 


64  A  RESUME  OF  THE 

suance  of  the  commands  of  the  Rothschilds  and  their  allied 

money  kings  of  the  world,  was  shipped  across  the  ocean. 

The  manner  in  which  this  was  accomplished  is  indicated 

in  the  following-  extract,   from  the   Report  of  Comptroller 

Trenholm  for  the  year  1888,  page  10 : 

"Another  feature  of  the  present  foreign  exchange  busi- 
ness should  not  be  overlooked  in  tracing  the  relations  be- 
tween that  business  and  our  monetary  system,  namely,  the 
existence  of  banking  houses  on  both  sides  of  the  Atlantic, 
and  employing  a  great  money  capital.  Formerly  capital 
was  seldom  transferred  from  one  country  to  another  for 
long  periods  of  time  without  either  a  change  in  i's  owner- 
ship, or  a  change  of  domicile  on  the  part  of  its  owner. 
Whereas  now  there  are  masses  of  capital  that  really  belong 
to  no  particular  country.  *  *  *  This  capital,  supple- 
mented by  the  almost  unlimited  credit  of  the  bankers  who  di- 
rect its  employment,  substantially  controls  the  course  of  inter- 
nalioual  exchanges,  but  its  movements  are  as  noiseless  as 
those  of  the  electric  current  by  which  they  are  guided,  and  as 
secret  as  the  cipher  language  in  which  they  are  alone  re- 
corded. ' ' 

Having  thus  drained  the  Treasury  of  a  large  portion  of 
its  gold,  the  cry  was  set  up  by  the  bankers  and  capitali&ts 
that  the  outflow  of  gold  and  the  money  stringency  were  oc- 
casioned by  the  purchasing  clause  of  the  Sherman  law,  and 
that  relief  could  only  be  obtained  through  its  repeal.  In 
this  position  the  bankers  received  the  invaluable  aid  of  the 
Administration.  President  Cleveland,  since  the  expiration 
of  his  first  term,  had  been  a  zealous  student  in  the  Wall 
Street  school  of  finance,  and  his  known  sympathy  with 
banking  and  financ!al  interests  had  secured  for  him  in  his 
contest  for  a  second  term  the  all-powerful  support  of  the 
money  power.  Acting  now  in  accordance  with  the  wishes 
of  this  money  power,  he  called  an  extra  session  of  Congress 
which  met  on  the  7th  day  of  August,  1893.  Elected  upon  a 
platform  which  declared  that  tariff  reform  was  the  su- 
preme iisue  before  the  people,  President  Cleveland,  never- 
theless, said  in  his  message  to  this  extra  session  of  Con- 


NATIONAL  BANKING  SYSTEM.  65 

gress  that  it  was  called  for  the  purpose,  and  only  for  the 
purpose,  of  effecting-  the  repeal  of  the  purchase  clause  of 
the  Sherman  law.  He  echoed  the  cry  of  thebankers  that 
this  law  was  the  cause  of  the  outflow  of  gold  and  of  the  dis- 
tress occasioned  by  the  money  famine.  John  Sherman, 
Tom  Reed,  Daniel  Voorhees,  Secretary  Carlisle  and  the 
leaders  generally  of  both  the  Republican  and  Democratic 
parties  took  the  same  position.  The  metropolitan  papers, 
owned  by  the  money  power,  threw  their  immense  influence 
in  favor  of  the  repeal  of  the  law.  It  was  iterated  and  reiter- 
ated by  all  these  minions  of  plutocracy  that  the  Sherman 
law  was  the  cause  of  the  trouble,  and  that  as  soon  as  it 
should  be  repealed  "confidence"  would  be  "restored''  and 
prosperity  would  immediately  follow.  No  means  were  left 
unused  which  might  in  any  way  assist  in  forcing  Congress 
to  repeal  the  law.  Patronage  was  given  or  withheld  by  the 
President  with  reference  solely  to  this  end.  History  will 
record  the  fact  that  never  before  had  any  President  ven- 
tured to  invade  the  legislative  department  of  the  Govern- 
ment to  such  an  extent  as  did  President  Cleveland  in  his  ef- 
forts to  secure  the  repeal  of  this  law.  As  an  instance  of 
the  way  in  which  the  leading  papers  of  the  county,  with- 
out distinction  as  to  party,  were  used  to  manufacture  public 
sentiment  in  favor  of  the  repeal  of  the  law,  the  following 
editorial  is  quoted  from  the  New  York  World's  issue  of  Oct. 
3.  1393.     Read  it  carefully. 

" If  there  is  anybody  who  has  sincerely  believed  that  what 
we  need  for  prosperity  is  more  money,  the  present  situation 
should  undeceive  him.  There  is  a  real  gorge  of  money  now 
in  the  banks.  The  surplus  reserve  was  swelled  during  the 
last  week  to  $28,481,800,  the  total  reserve  being  $128,677,700. 
In  the  meanwhile  business  remains  stagnant,  and  the  banks 
are  still  more  than  reluctant  to  lend  their  surplus  holdings 
upon  time  paper,  the  only  lending  that  brings  relief  to  mer- 
chants, manufacturers  and  other  employers  of  men.  So  long 
as  any  shadow  of  uncertainty  remains  as  to  the  repeal  of  the 
silver  law,  the  holders  of  money  prefer  to  keep  it  unprofitably 


66  A  RESUME  OF  THE 

idle  rather  than  put  it  out  in  doubt  as  to  the  kind  of  dollars 
they  arc  to  receive  in  return  for  it." 

This  editorial  admits  the  fact  that  the  immediate  cause  of 
the  distressed  condition  of  affairs  was  the  locking-  up  in 
bank  vaults  of  the  circulating-  medium,  but  protests  that  the 
banks  were  compelled  to  do  this  through  fear — all  at  once 
engendered — that  the  loans  of  their  "promises  to  pay" 
might  be  repaid  to  them  in  lawful  silver  money  ! 

What  caused  this  sudden  fear  on  the  part  of  the  banks? 
Had  the  people  generally  lost  confidence  in  silver  money  ? 
On  the  contrary,  in  spite  of  the  warfare  waged  against  it  by 
the  bankers,  the  people  never  for  one  moment  hesitated  to 
accept  it. 

Does  the  reader  recall  a  single  instance  in  which  any  in- 
dividual— not  a  banker — objected  to  the  taking  of  silver  coin 
on  the  ground  that  it  was  not  good  money? 

Does  he  remember  an  instance  in  which  any  man  has 
been  obliged  to  part  with  an  unmutilated  silver  coin  at  less 
than  par? 

Is  it  not  sufficiently  apparent  that  this  scarecrow  was 
constructed  by  the  bankers  to  serve  a  purpose  of  their 
own  ? 

As  further  evidence  of  the  fact  that  this  panic  was  pre- 
cipitated by  the  banks  of  New  York  and  Chicago,  and  that 
it  was  done  for  the  purpose  above  stated,  the  following 
quotation  is  made  from  an  article  in  the  New  York  Sun  of 
April  27,  1893: 

"President  Cleveland's  advisers  have  told  him  that  the 
only  way  to  induce  the  Western  and  Southwestern  Con- 
gressmen and  Senators  to  consent  to  a  repeal  of  the  Sher- 
man law  is  to  demonstrate  to  their  constituents  that  they 
are  losing  every  day  this  law  remains  in  effect.  This  work 
in  that  direction  has  been  started  by  a  number  of  bankers  in 
the  solid  commtmities  of  the  East.  They  are  daily  refusing 
credits  to  the  South,  Southwest  and  West.  The  Chicago  banks 
it  is  said  are  cat'rying  out  the  same  line  of  policy." 


NATIONAL  BANKING  SYSTEM,  67 

The  influence  brought  to  bear  upon  Congress  through  all 
these  agencies  proved  irresistable.  By  a  decided  majority 
of  both  the  Democratic  and  the  Republican  members,  all 
free  coinage  amendments  to  the  bill  were  voted  down,  and 
Congress,  after  a  bitter  struggle  in  which  the  true  represen- 
tatives of  the  people  contested  every  inch  of  ground,  sur- 
rendered to  the  money  power  and  repealed  the  law.  It  is 
now  nearly  a  year  since  this  was  done,  but  the  good  times 
promised  as  the  immediate  result  of  such  action  have  not 
yet  made  their  appearance.  On  the  contrary,  the  then  un- 
happy condition  of  affairs  has  grown  steadily  worse. 

As  soon  as  they  had  thus  succeeded  in  securing  the  repeal 
of  the  Sherman  law,  the  bankers  and  capitalists  began  to 
demand  that  the  Government  should  issue  and  sell  bonds 
for  gold  with  which  to  replenish  the  gold  reserve  which  they 
had  purposely  depleted. 

The  President  said  this  ought  to  be  done.  Secretary  Car- 
lisle said  the  same.  John  Sherman  said  bonds  must  be  sold. 
And  so  Congress  was  again  besieged  and  ordered  to  enact  a 
law  giving  to  the  Secretary  of  the  Treasury  authority  to 
issue  bonds. 

The  protests  of  an  outraged  people,  however,  were  begin- 
ning to  make  themselves  heard  even  in  the  deafened  ears  of 
Congress,  and  the  money  power,  fearing  that  it  might  not 
thus  succeed  in  obtaining  the  coveted  bonds,  demanded  of 
the  Secretary  of  the  Treasury  that  he  should  at  once  pro- 
ceed to  issue  them  without  waiting  for  authority  from  Con- 
gress. This  mandate  the  Secretary  hastened  to  obey.  In 
the  face  even  of  resolutions  offered  in  both  houses  of  Con- 
gress declaring  such  issue  of  bonds  unauthorized,  the  Sec- 
retary proceeded  to  execute  the  order  of  the  banks. 

Fifty  million  dollars  of  interest-bearing  bonds  were  sold 
for  gold  with  which  to  build  up  the  $100,000,000  gold  re- 
serve, which  was  itself  established  not  by  authority  of  law, 


68  A  RESUME  OF  THE 

but  solely  by  the  fiat  of  John  Sherman,  as  Secretary  of  the 
Treasury. 

The  following-  statement  in  regard  to  this  bond  issue, 
which  appeared  in  the  associated  press  reports  on  Feb.  9, 
1894,  shows  how  completely  the  Treasury  department  is  un- 
der the  control  of  Wall  Street : 

"Responding-  to  the  resolution  which  passed  the  Senate 
on  the  2d  inst.  the  Secretary  of  the  Treasury  to-day  sent  to 
the  Senate  a  statement  showing  the  names  of  bond  sub- 
scribers offering-  117.223,  whose  subscriptions  were  accepted, 
tog-ether  with  the  amount  subscribed  for,  and  the  amount 
allotted  at  the  price.  The  statement  also  gives  a  list  of 
those  offering-  to  purchase  at  a  higher  price,  and  a  list  of 
those  not  considered  for  various  reasons.  Among  the  allot- 
ments on  the  117.223  bids  are  the  following  :  Hanover  Na- 
tional Bank  of  New  York,  $1,420,000 ;  Kuhn,  I^oeb  &  Co.,  of 
New  York,  $1,420,050;  United  States  Trust  Co.,  of  New 
York,  $2,336,700;  Farmers-'  Iyoan  &  Trust  Co.,  of  New  York, 
$1,893,400;  Union  Trust  Co.,  of  New  York,  $2,366,700;  New 
York  Life  Insurance  Co.,  of  New  York,  $2,840,050.  The 
amount  in  the  aggreg-ate  of  this  class  is  $40,704,700.  All  the 
bids  at  figures  over  uj.223  amount  in  the  aggregate  to  $69,- 
295,300." 

The  above  statement  of  the  Secretary  reveals  the  aston- 
ishing- fact  that  these  $50,000,000  of  bonds  were  sold  to  fa- 
vored banks  and  trust  companies  in  the  East  at  a  premium 
of  17.223  per  cent.,  although  offers  for  more  than  the  entire 
issue  were  made  at  higher  figures! 

The  banks  have  again  succeeded  in  reducing  the  g-old  re- 
serve to  a  point  even  belowr  that  reached  when  the  above 
bonds  were  issued. 

Will  another  issue  of  bonds  be  effected  in  violation  of  the 
law  and  in  defiance  of  the  people  ? 


NATIONAL  BANKING  SYSTEM.  69 

i 

CONCLUSION. 

Thus  silver  has  been  cast  aside  to  make  way  for  bank 
paper.  But  the  banking-  corporations  will  not  fest  content 
with  this  victory.  Ever  since  the  war  they  have  been  try- 
ing- to  secure  the  withdrawal  from  circulation  of  the  green- 
back currency.  The  $346,000,000  of  greenbacks  (less  such 
amounts  as  have  been  accidentally  destroyed)  constitute  a 
thorn  in  the  side  of  the  banking  interests  which  the  bank- 
ers have  sworn  to  remove  at  the  earliest  possible  moment. 
The  successive  heads  of  the  Treasury  department  have,  al- 
most without  exception,  felt  it  incumbent  upon  them  to 
voice  this  desire  of  the  bankers  and  to  recommend  the  re- 
tirement of  the  greenback. 

As  an  example  of  the  logic  used  by  these  officials  in  thus 
championing  the  bankers'  cause,  the  following-  is  taken 
from  the  Report  of  Comptroller  Trenholm  for  the  year  1888, 
page  11 : 

"The  $346,000,000  of  greenbacks  are  the  weak  point  in  our 
currency  system.  The  gold  coin  and  certificates  stand  first, 
the  national  bank  notes  stand  next,  the  silver  coin  and  cer- 
tificates third,  and  the  greenbacks  last  in  the  order  of  assured 
value,  and  it  would  be  a  great  benefit  to  the  whole  mass  of 
the  currency  if  this,  its  frailest  element,  could  be  eliminated 
from  it.  The  present  state  of  things  seems  favorable  to 
the  substitution  of  national  bank  notes  for  greenbacks,  and 
to  that  end  I  venture  to  submit  for  the  consideration  of  Con- 
gress, the  following-  measures : 

1.  Funding-  in  bonds  the  greenback  debt  of  $346,000,000,  or 
so  much  of  it  as  may  be  presented  within  a  limited  period 
of  time,  say  three  years. 

2.  The  bonds  to  be  issued  only  to  national  banks  presenting 
greenbacks  for  that  purpose,  to  bear  a  low  rate  of  interest, 
and  to  mature  only  upon  the  failure  of  the  bank,  or  its  disso- 
lution. 

3.  The  bonds  so  issued  to  be  available  only  as  a  deposit  to 
secure  national  bank  circulation,  and  to  entitle  the  banks  de- 


70  A  RESUME  OF  THE 

positing  them  to  receive  circulating  notes  to  the  amount  of 
their  face  value. 

In  support  of  these  measures,  it  may  be  said :  *  *  * 

4.  As  the  greenbacks  will  not  be  extinguished,  but  held 
in  a  state  of  suspended  monetary  vitality,  until  the  fail- 
ure or  liquidation  of  a  bank  requires  their  use  in  the  redemp- 
tion of  its  notes,  they  will  constitute  a  reserve  fund  lying 
in  the  Treasury  ready  for  use  at  any  moment  of  emergency 
in  the  redemption  of  any  portion  of  the  ?iational  batik  curren- 
cy that  may  become  discredited.''1 

What  unanswerable  arguments  are  here  presented  by  Mr. 
Trenholm  in  favor  of  the  retirement  of  the  greenbacks ! 
They  are,  he  says,  the  frailest  element  in  our  monetary 
system,  whereas  the  bank  note  stands  next  to  gold  in  the 
order  of  assured  value.  Still,  he  would  not  destroy  them 
altogether.  He  would  simply  retire  them  from  circulation 
by  funding  them  in  interest-bearing,  never-maturing  bonds 
(upon  which  he  would  permit  banks  to  issue  an  equal 
amount  of  bank  notes),  and  keep  them  in  the  Treasury  until 
they  were  needed  to  redeem  bank  fiotes  which  had  become  dis- 
credited. 

Let  no  one  presume  to  question  the  logic  of  this  brilliant 
advocate  of  the  banks  ! 

If  the  reader  finds  it  difficult  to  understand  how  it  is  that 
the  only  use  to  which  a  frail  currency  can  profitably  be  put, 
is  to  redeem  a  currency  which  stands  higher  in  the  order  of 
assured  value,  let  him  ascribe  the  fault  to  his  own  want  of 
understanding,  rather  than  to  any  weakness  in  the  argu- 
ment of  the  Comptroller  ! 

The  bankers  are  forever  harping  on  the  need  of  an  elas- 
tic currency,  and  referring  to  such  need  as  a  reason  for  the 
substitution  of  bank  notes  for  greenbacks.  In  his  Report 
for  1887  the  Comptroller  says : 

"From  the  standpoint  of  the  commercial  and  other  indus- 
tries, elasticity  is  more  important  than  quantity  in  the  cur- 


NATIONAL  BANKING  SYSTEM.  71 

rency.  Their  interests  are  better  subserved  by  a  currency 
so  elastic  in  volume  as  to  respond  immediately  to  varia- 
tions in  the  demand  for  it  than  by  a  great  volume  of  money 
rigid  in  amount." 

The  following  authorities  are  added  to  those  already 
quoted  in  favor  of  the  people's  side  of  this  question. 

In  the  course  of  a  speech  delivered  in  the  Senate,  Feb.  3, 
1873,  Oliver  P.  Morton  said : 

"The  Senator  from  Connecticut  (Mr.  Buckingham)  said, 
and  I  think  I  have  heard  the  Senator  from  Ohio  (Mr.  Sher- 
man) talk  about  an  elastic  currency,  ^flexible  currency.  I 
have  never  believed  much  in  such  a  currency.  I  have  al- 
ways regarded  it  as  a  financial  fallacy.  I  think  it  is  one  of 
the  worst  things  that  can  happen.  I  believe  the  strongest 
element  in  the  financial  stability  of  this  country  for  the 
last  few  years  has  been  the  fact  that  our  country  has  had  a 
fixed  amount  of  currency,  an  amount  that  everybody 
knows.  *  *  *  It  does  not  depend  now  upon  the  will  of 
private  persons.  But  (under  the  proposed  law)  speculators 
in  New  York,  bankers  and  brokers  might  for  the  very  pur- 
pose of  making  a  financial  panic,  run  in  $50,000,000  of 
greenbacks  and  get  five  per  cent,  bonds,  and  be  prepared  to 
take  advantage  of  the  contraction  and  of  the  necessary  de- 
pression following  it." 

An  address  prepared  by  Congressman  Arnassa  Walker,  of 
Massachusetts,  at  the  time  the  national  bank  bill  was  under 
discussion,  but  not  delivered,  contains  the  following  state- 
ments :* 

"Could  I  have  my  own  wishes,  I  should,  as  I  have  before 
insisted,  instead  of  creating  a  rival  system,  lay  a  tax  of 
three  per  cent,  semi-annually  on  all  present  bank  circula- 
tion, drive  it  entirely  out  of  existence,  and  fill  its  place  with 
legal  tender  notes  of  the  Government.  *  *  *  I  would 
thus  establish  one  kind  of  currency  instead  of  three,  and 
that  the  cheapest  and  best  we  could  possibly  have.  This 
arrangement,  together  with  the  legal  provision  that  banks 
might  issue  specie  certificates  for  specie  actually  in  their 
possession,  would  furnish  them  and  the  public  with  all  the 

*See  Bolle's  "FinanciallHistory,"  p.  216. 


72         A  RESUME  OF  THE  NATIONAL  BANKING  SYSTEM. 

currency  they  could  possibly  need,  and  one  that  would  never 
be  exposed  to  any  fluctuation  except  that  which  naturally 
arises  from  the  operation  of  the  laws  of  trade,  and  which 
could  never  be  violefit  or  really  injurious  to  any  community 
or  State." 

Having  once  obtained  a  sufficient  supply  of  money  to  fill 
the  channels  of  trade,  there  should  be  no  chang-e  in  its  vol- 
ume except  such  increase  as  might  be  required  by  an  in- 
crease of  population  and  business  to  keep  those  channels 
full. 

This  resume  has  already  been  extended  beyond  the  limits 
which  it  was  originally  designed  to  occupy.  Certain  objec- 
tions to  this  backing  system  have,  nevertheless,  been  only 
incidentally  referred  to,  while  other  minor  ones  have  re- 
ceived no  consideration.  It  is  hoped,  however,  that  what 
has  been  recorded,  may  assist  in  some  degree  in  calling  at- 
tention to  the  inherent  evils  of  the  system. 

"Bank  paper  must  be  suppressed  and  the  circulation  re- 
stored to  the  Nation,  to  which  it  belongs." 

Otherwise,  we  shall  never  approach  to  that  ideal  of  gov- 
ernment which  Jefferson  described  when  he  said : 

''Let  us  found  a  government  where  there  shall  be  no  ex- 
tremely rich  men  and  no  abjectly  poor  ones.  L,et  us  found 
a  government  upon  the  intelligence  of  the  people  and  the 
equitable  distribution  of  propert)r.  L,et  us  make  laws  where 
there  shall  be  no  governmental  partnership  with  favored 
classes.  L^et  us  protect  all  in  life,  liberty  and  property,  and 
then  say  to  every  American  citizen,  with  the  gifts  that  God 
has  given  you,  your  brain  and  brawn  and  energy,  work  out 
your  own  fortune  under  a  just  government  and  an  equal 
jurisprudence." 


OHN  H-  WILLS 

OLD  BOOKS. 
i06   Uth  St.  N.  W^ 

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